Chapter 16: Economic and Social Welfare Policymaking

Economic Policymaking

• Major Economic Worries: Unemployment and Inflation   

•   - Unemployment: The unemployment rate reached a peak of $10\%$ during the Great Recession.     

•    Underemployment Rate: This statistic is tracked by the Bureau of Labor Statistics (BLS) and includes those who have given up looking for work or are working part-time because they cannot find full-time employment.

•     - Inflation:         - Defined as a rise in the price of goods and services.         - Consumer Price Index (CPI): The primary measure used to track inflation; it averages approximately $4\%$ annually.

• Policies for Controlling the Economy    

•  - Laissez-faire: An economic theory holding that government intervention in the economy is detrimental to economic growth and prosperity. It suggests that the economy should be left to its own devices without state interference.

•     - Monetary Policy and the "Fed":       

•   - Controlled by the Federal Reserve Board (the "Fed").      

•    - The board meets in secret and is notably not accountable to Congress.    

•      - Mechanism: The Fed controls the economy by manipulating the amount of money in circulation.       

•   - Leadership: Janet Yellen is identified as the Chairman of the Fed (at the time of the text).  

•    - Fiscal Policy: Involves the use of taxing, spending, and borrowing to influence the economy.      

•    - Keynesian Economic Theory: Support for government spending to stimulate the economy, particularly during downturns.        

•  - Supply-side Economics: The theory that reducing taxes (especially on the wealthy and corporations) will stimulate investment and economic growth.

• Barriers to Controlling the Economy   

•   - Political Business Cycle: The observation that Presidents may attempt to manipulate the economy to improve their chances of winning elections.

•     - Private Sector Dominance: The private sector remains the dominant force in the American economy.   

•   - Size of Government: The federal government accounts for only $\frac{1}{4}$ of the Gross Domestic Product (GDP).  

•    - Implementation Lag: The impact of government economic policies is generally gradual rather than immediate.     - Case Study (Figure 16.1): The Obama administration's predictions regarding the impact of the 2009 stimulus plan did not align with actual outcomes ("went awry").

Types of Social Welfare Policies

• Overview of Spending     - Social welfare is the biggest government expense.     - Only $17\%$ of social welfare spending goes specifically to the poor.

• Entitlement Programs     - Examples include Social Security and Medicare.     - These are the largest and most expensive programs in the federal budget.     - Eligibility is based on meeting specific criteria (like age), regardless of financial need.

• Means-Tested Programs     - Examples include Food Stamps (SNAP) and Medicaid.     - These programs are available only to those who qualify based on income level.     - There is a persistent political "fear of dependency" associated with these programs.

Income, Poverty, and Public Policy

• Who’s Getting What?     

• - Income Distribution: This reflects the sense of justice and equality within a democracy.

•     - Relative Deprivation: This phenomenon is increasing in the United States.     - Wealth Versus Income:

•         - Income: The amount of money collected in a given period of time.         - Wealth: The total value of all assets owned.     - Inequality Statistics:         - $\frac{1}{3}$ of all wealth is held by the top $1\%$ of the population.         - $\frac{1}{3}$ of all wealth is held by the remaining $90\%$ of the population.  

•    - Historical Context: There has been a significant increase in income inequality and the rise of the top $1\%$ (Figure 16.2).

• Poverty in America    

•  - The Poverty Line: In 2010, the threshold was set at $\$11,139$.    

•  - Poverty Statistics: In 2010, $46.6$ million Americans were considered poor, representing $15.2\%$ of the population.   

•   - Feminization of Poverty: The demographic trend where women represent a disproportionate share of the world's poor.

• How Public Policy Affects Income     

• - Taxation Strategies:       

•   - Progressive: Tax rates increase as income increases.         

• - Proportional: Everyone pays the same percentage of income (flat tax).      

•    - Regressive: Lower-income individuals pay a higher percentage of their income than higher-income individuals (e.g., sales tax).

•     - Government Expenditures:     

•     - Transfer Payments: Benefits given by the government directly to individuals, such as Social Security, unemployment benefits, and food stamps.         - Electronic Benefit Transfer (EBT): Method for distributing benefits, often used at locations like farmers' markets.

Helping the Poor: Social Policy and the Needy

• "Welfare" History     - FDR's New Deal Programs: Established the Social Security Act of 1935 and Aid to Families with Dependent Children (AFDC).     - Johnson’s War on Poverty: Introduced programs such as Food Stamps.

• Republican Critique     - A "war on dependency" emerged, involving terms like "Welfare queens," "Deadbeat dads," and the "undeserving poor."

• The Welfare Reform of 1996   

•   - Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA):        

•  - Transferred program management to the states.      

•    - Established a two-year limit for continuous benefits.    

•      - Established a lifetime maximum of $5$ years of benefits.    

•      - Replaced AFDC with Temporary Assistance for Needy Families (TANF).     - Effectiveness: The reforms led to a decline in the dollar amounts of benefits and a drastic reduction in the number of recipients on the welfare rolls (Figure 16.4).

Social Security: Living on Borrowed Time

• The Growth of Social Security     

• - It is a highly popular program with modest benefits, averaging $\$1,229$ per month per recipient.

•     - It is the most expensive public policy in the U.S.  

•    - While currently fiscally sound relative to recent history, the surplus has been depleting since 2010.

• Reforming Social Security   

•   - Political Difficulty: Reform is hard because older Americans have a very high voting rate.

•     - President Bush’s Proposals: Suggested putting $\frac{1}{3}$ of social security funds into private investments/the stock market.  

•    - President Obama’s Proposals:         - Increase the age to receive benefits.         - Lower inflation-based raises.         - Reduce benefits for wealthy recipients.         - Raise contribution amounts (taxes).

Social Welfare Policy Elsewhere

• European Welfare State  

•    - European nations generally have higher taxes and more extensive benefits than the U.S.  

•    - Cultural Contrasts:         

• - Americans: Tend to believe poverty is the fault of the individual.         - Europeans: Tend to believe poverty is a result of circumstances beyond an individual’s control.

Understanding Economic and Social Welfare Policymaking

• Democracy and Welfare Policies    

•  - Democratic processes allow for government regulation of free enterprise (e.g., laws against child labor documented by Lewis W. Hine).     - Political groups have unequal resources, which often leads to policy inertia.

• Scope of Government

•     - Liberals: Advocate for more government intervention in economic and social welfare areas.   

•   - Conservatives: Want less government intervention and often view the welfare state as too large, serving an "undeserving" clientele.

Questions & Discussion

• What tools does the government possess to intervene in the economy?     - Direct tools include fiscal policy (taxing, spending, borrowing) and monetary policy (adjusting the money supply and interest rates through the Fed).

• Who wields these tools and how effective are they in improving economic growth?     - The Fed wields monetary tools, while Congress and the President control fiscal policy. Their effectiveness is hampered by private sector dominance and the political business cycle.

• Why do conservatives and liberals disagree about social welfare policy?     - Disagreement stems from differing philosophies on individual responsibility versus collective government responsibility, as well as differing views on the impact of government intervention on economic growth and dependency.