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Chapter Fourteen:


Chapter Fourteen: Domestic and Economic Policy * Loose Monetary Policy monetary policy that makes credit inexpensive and abundant, possibly leading to inflation. – PowerPoint PPT presentation

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Title: Chapter Fourteen:

Chapter Fourteen Domestic and Economic Policy
Chapter Fourteen Learning Objectives
  • Describe the policymaking process, including
  • -- Agenda building
  • -- Policy formulation
  • -- Policy adoption
  • -- Policy implementation
  • -- Policy evaluation

Chapter Fourteen Learning Objectives
  • Explain the meaning of a personal health
    insurance mandate.
  • Describe increases of unauthorized immigrants and
    the effects of this increased population.
  • Explain the attempts of the U.S. House and Senate
    to pass bills controlling the flow of
    unauthorized immigrants and the companies who
    hire them.

Chapter Fourteen Contents
  1. The Policymaking Process
  2. Health Care
  3. Immigration
  4. Crime in the Twenty-first Century

Chapter Fourteen Contents
  • Energy and the Environment
  • The Politics of Economic Decision Making
  • The Politics of Taxation

The Policymaking Process
  • The Policymaking Process
  • Domestic Policy

The Policymaking Process
  • Five Steps of Policymaking
  • Agenda Building
  • An issue must get on the agenda

The Policymaking Process
  • Congress must be aware that a problem exists and
    requires congressional action

AP Photo/Charles Dharapak
Timeline of Economic Crisis
  • Late 90s early 2000s, people were able to
    obtain mortgages at a low interest rate, but many
    were obtained subprime mortgages
  • Around 2004 Banks began to stop issues subprime
    are adjustable rate mortgages
  • 2004 2008 Banks lost billions from people who
    were not able to pay pack loans, foreclosures
    skyrocketed, and the credit of both banks and
    individuals suffered
  • 2008 POLICY Decision - 700 Bank Bailout Bill

The Policymaking Process
  • In late 2008, as banks were no longer taking
    excessive risks, it was feared that this could
    lead to a potential freeze on credit and lending
    by the nations firms thus leading to a
    possible shut down of the economy. Financers
    pleaded to the government for assistance.

The Policymaking Process
  • Policy Formulation
  • Various policy proposals are discussed among
    government officials and the public

The Policymaking Process
  • Bush-appointed Secretary of Treasury Henry
    Paulson proposed via three-page memo a 700
    billion bill to buy toxic mortgage-related
    assets. Congress created a 110-page bill filled
    with pork and oversight provisions.

The Policymaking Process
  • Policy Adoption
  • This step involves choosing a specific policy
    from among the proposals that have been

AP Photo/Richard Drew
The Policymaking Process
  • After the House refused to pass the bank bailout
    bill, Senate leaders decided to amend an existing
    bill already passed by the House
  • The Troubled Assets Relief Program (TARP) was 451
    pages filled with earmarks to attract votes.

The Policymaking Process
  • Policy Implementation
  • This step involves the implementation of the
    policy alternative chosen by Congress.

The Policymaking Process
  • Officials soon realized that TARP could be spent
    on preferred stock in banks, rather than buy
    toxic banks, which would not resolve the
    financial crisis, eventually returning TARP funds
    to the government.

The Policymaking Process
  • Policy Evaluation
  • After a policy has been implemented, it is
  • Groups inside and outside government conduct
    studies to determine what actually happens after
    a policy has been in place for a given period of

The Policymaking Process
  • Initially, the public didnt mind the switch to
    preferred stock, rather they were concerned with
    employee compensation and future lending
  • Soon the TARP program was viewed as a Wall Street
    bailout for special interests.

Health Care
  • Health Care
  • America spends almost twice as much as Britain or
  • Spending is measured by the percentage of the
    gross domestic product (GDP).

Health Care
  • The Governments Role in Financing Health Care
    Through 2009
  • Medicarea state-federal program, specifically
    designed to support U.S. residents over 65
  • This program is funded by tax on wages and

Health Care
  • Created in 1965, pays hospital and physicians
    bills for those residents over 65
  • Second-largest domestic spending program after
    Social Security
  • Government has cut reimbursement funds and have
    capped specific procedures

Health Care
  • The Governments Role in Financing Health Care
    Through 2009
  • Medicaida state-federal program, specifically
    designed to subsidize health care for the poor

Health Care
  • This program is funded out of general government
  • In 2007, 34 million people were enrolled in the

AP Photo/J. Scott Applewhite
Health Care
  • Today, there are about 60 million, exceeding over
    300 billion
  • The Federal government pays 55 percent of total

Health Care
Health Care
Health Care
  • Universal Health Insurance
  • President Obama signed into law on March 23,
    2010, the Patient Protection and Affordable Care
  • Obamacare explained
  • Obamacare Rebutal

Health Care
  • On March 30, the President signed the Health Care
    and Education Reconciliation Act of 2010.

AP Photo/Stephen Chemin
Health Care
  • Largest expansion of government services since
    Lyndon B. Johnson
  • An opt-out provision if an individual rejects the
  • Illegal immigrants will not be covered.

Health Care
  • Health-care Reform Building an Agenda
  • The Problem of the Uninsured
  • Over 45 million Americans are uninsured
  • The uninsured are young, entry-level workers
    without health benefits

Health Care
  • Health-care Reform Building an Agenda
  • The Problem of High Costs
  • New technology and lifesaving measures are a
    costly burden on the system.
  • The Medicare trust fund was projected to run out
    of funds in 2017.

Health Care
  • Health-care Reform Adopting a Policy
  • Universal Health Insurance
  • Personal Mandate
  • Public Option

David McNew/Getty Images
Health Care
  • Health-care Reform Implementing Policy
  • Most of the provisions do not go into effect
    until 2014 and the last provision is not
    scheduled until 2018.
  • Voters will not receive benefits for at least two
    election cycles.

  • Americans have spent many billions of dollars on
    health care over the last half-century. What kind
    of return have they received for that spending?
    One way to answer the question is to observe that
    since 1950, the life expectancy of the average
    American has increased about one year with the
    passage of each span of six years. Much of that
    increase in life expectancy is doubtless due to
    health-care spending. In todays dollars, since
    1950 the average American spent 11,400 on health
    care in every span of six years. Therefore, we
    could say that on average, Americans spent
    11,400 to buy one year of additional life. If
    someone asked you how much your life is worth in
    dollar terms, you probably would be hard-pressed
    to provide a figure. You might reject the
    question entirely. Insurance companies and
    government agencies, however, routinely need to
    estimate the economic value of a persons life. A
    typical estimate by economists would be about
    75,000 a year. This is about six times what it
    cost to buy those additional years of life. By
    these calculations, health-care spending appears
    to be a bargain. That does not mean, however,
    that we are spending too little on health care.
    To ask if we are spending too little, the correct
    question is as follows If we spend one
    additional dollar on health care, will we get one
    additional dollars worth of benefit? This is a
    hard question to answer.

  • We stated in this chapter that Americans spend
    more on health care than the people of almost any
    other country. It is not an accident that the
    United States is also the only truly rich country
    that does not have a national health insurance
    system. Insurance provision by the government
    tends to hold down total costs for several
    reasons. One is that the government is in an
    excellent bargaining position to demand lower
    prices from medical care providers and from
    pharmaceutical companies. But is such bargaining
    a good idea? The pharmaceutical industry, for
    example, makes more profits selling drugs in
    America than in Germany, where the government has
    negotiated lower prices. One effect of the high
    profits that the industry earns in the United
    States is that it is able to fund a vast research
    effort aimed at finding new drugs. Some experts
    believe that the industry would be unable to
    mount such an effort if Americans paid German
    prices for drugs. (Such thoughts may have been on
    the minds of the Republicans who barred the
    government from negotiating lower drug prices as
    part of the Medicare drug benefit.) American
    spending, in other words, may be providing the
    rest of the world with a free ride in terms of
    pharmaceutical research. What applies to
    pharmaceuticals may also apply to other branches
    of medicine. It is possible that Americas lavish
    medical spending is one of the main engines
    driving worldwide progress in medical science.

  • Immigration
  • The Issue of Unauthorized Immigration
  • Approx. 12 million undocumented aliens
  • Hispanic populations have grown dramatically in
    the southwestern states.

AP Photo/Ralph Fresco
  • Characteristics of the Undocumented Population
  • Studies show unauthorized immigrants return home
    to retire.
  • A great deal send money home to relatives .
  • Many live in mixed households some have lawful
    family members.

  • Concerns about Unauthorized Immigration
  • Laws and customs
  • Coyotes may exploit or abuse clients
  • Contributes to the illegal drug trade

  • Attempts at Immigration Reform
  • Public opinion is contradictory.
  • 1/5 favor immediate deportation.
  • Though a serious problem, most dont believe it
    should be a priority issue.

  • Immigration and the Obama Administration
  • Administration instituted harsh crackdowns on
    employers of undocumented workers.
  • Immigration reform was tabled for Health Care.

  • The Arizona Immigration Controversy
  • In April 2010, Arizonas governor signed
    legislation that would make it a crime to not
    carry immigration documentation.
  • The 2010 election and health care legislation
    forced immigration to take a seat behind top

Crime in the Twenty-first Century
  • Crime in American History
  • Crime has been an issue of concern throughout
    Americas history.
  • Industrialization and bureaucratic institutions
    like factories and schools socialized citizens
    into patterns of conformity and rules.

Crime in the Twenty-first Century
  • In the 20s and 30s, organized crime flourished
    during prohibition.
  • Crime rates began to rise in the 50s and grew
    substantially in the 1960s.
  • Since 1995, violent crime rates have declined.

Crime in the Twenty-first Century
  • The Prison Population
  • Many Americans believe the best solution to
    curbing crime is to impose stiff prison
  • In 2008, 2.3 million people were imprisoned in

Crime in the Twenty-first Century
  • The Incarceration Rate
  • Men are ten times more likely to be incarcerated
    than women.
  • Prisoners are also disproportionately African

Crime in the Twenty-first Century
  • Prison Construction and Conditions
  • Prisons are releasing criminals early due to
  • Several states are building more prisons to house
    the growing inmate population.

Crime in the Twenty-first Century
Crime in the Twenty-first Century
Crime in the Twenty-first Century
Crime in the Twenty-first Century
Energy and the Environment
  • Energy and the Environment
  • Energy policy addresses two key issues
  • Americas reliance on foreign oil
  • Potential global warning caused by increased
    emissions of CO2

Theo Heimann/AFP/Getty Images
Energy and the Environment
  • OilA Strategic Issue
  • The United States imports three-fifths of the
    petroleum it consumes primarily from the Middle
    East .
  • President Obama has attempted to reduce the U.S.
    dependence on foreign oil.

Energy and the Environment
  • Global Warming
  • There is much debate over the amount of warming
    that will occur.

Johnny Johnson/Getty Image
Energy and the Environment
  • Scientists agree that global warming will be
  • Documentaries like Al Gores An Inconvenient
    Truth, brought the issue into the limelight.

Energy and the Environment
Energy and the Environment
  • The BP Deepwater Horizon Oil Spill

AP Photo/Bill Haber
Energy and the Environment
  • Extent of the spill
  • Largest oil spill in American history
  • Over 3,850 square miles
  • Gushing oil rate of 5,000 barrels a day

Energy and the Environment
  • Attempts to Plug the Leak
  • BP, the company responsible, failed at plugging
    the leak.
  • Failed attempts resulted in additional amounts of
    oil that leaked into the ocean.

Energy and the Environment
  • Cleanup Efforts
  • The Federal Governments Response
  • The Failure of Regulation
  • Public Reaction

Redux/Stephen Crowley/The New York Times
The Politics of Economic Decision Making
  • The Politics of Economic Decision Making
  • Good Times, Bad Times
  • Recession
  • Unemployment
  • Inflation

The Politics of Economic Decision Making
  • To try and control peaks and valleys of the
    national economy, the government has several
    policy options.
  • One is to change the level of taxes or government
  • Another is to influence interest rates and the
    money side of the economy.

The Politics of Economic Decision Making
  • Fiscal Policy
  • Keynesian Economics
  • School of thought that supports the use of
    government spending and taxation to help
    stabilize the economy
  • Summary of Keynesian Economics

The Politics of Economic Decision Making
  • Government Spending and Borrowing
  • Keynes believed that forces of supply and demand
    operated too slowly on their own in such a
    serious recession.
  • Government should step in and spend what is
    needed to return the economy to a more normal

The Politics of Economic Decision Making
  • Government spending can be financed through
    increasing taxes and borrowing money.
  • It is essential that the spending be financed by
    borrowing, and not by taxes.
  • Government should run a budget deficit.

The Politics of Economic Decision Making
  • Discretionary Fiscal Policy
  • Beginning with President John F. Kennedy,
    policymakers have attempted to use Keynesian
    methods to fine-tune the economy.
  • Discretionary fiscal policyleft to the judgment
    of the policymaker

The Politics of Economic Decision Making
  • Criticisms of Keynes
  • Those who object to Keynes theories argue that
    fiscal policy has no effect or that it has
    negative side effects that outweigh the benefits.

Walter Stoneman/Samuel Bourne/Getty Images
The Politics of Economic Decision Making
The Politics of Economic Decision Making
  • Deficit Spending and the Public Debt
  • U.S. Treasury Bonds
  • Public Debt, or National Debt
  • The total amount of debt carried by the federal
  • China and Japan own most of the debt of the
    United States.

The Politics of Economic Decision Making
  • The Public Debt in Perspective
  • Gross Public Debt
  • Net Public Debt
  • Our Debt Ceiling - 16.4 Trillion

The Politics of Economic Decision Making
  • Are We Always in Debt?
  • From 1998 to 2002, President Bill Clinton
    obtained a tax increase as the nation emerged
    from a mild recession.
  • A series of events led to the fall of the
    surplus, increasing the federal debt starting in

The Politics of Economic Decision Making
  • Events that led to the increase in public debt
  • The dot-com bust, which lowered the rate of
    growth and the federal governments tax receipts
  • September 11, 2001, and the spending associated
    with Homeland Security
  • The War in Iraq

The Politics of Economic Decision Making
  • Congressional discretionary programs
  • In 2009, President Obama pushed for the largest
    spending bill not seen since WWII with The
    Economic and Reinvestment Act of 2009.

The Politics of Economic Decision Making
  • Monetary Policy
  • Federal Reserve System (The Fed)
  • The agency created by Congress in 1913 to serve
    as the nations central banking organization.

The Politics of Economic Decision Making
  • The Fed regulates the amount of money in
    circulation supervises banking industry holds
    reserves deposited by most banks and so on.

AP Photo/Alex Brandon
The Politics of Economic Decision Making
  • Federal Open Market Committee
  • The most important body within the Federal
    Reserve System
  • The Committee decides how monetary policy should
    be carried out.

The Politics of Economic Decision Making
  • Loose and Tight Monetary Policies
  • Monetary Policy
  • Loose Monetary Policy
  • Tight Monetary Policy

The Politics of Economic Decision Making
  • Time Lags for Monetary Policy
  • The time between a policy and its implementation
    may take several months.
  • Reliable information may not be available for

The Politics of Economic Decision Making
  • Monetary Policy During a Recession
  • Regulating Banks

The Politics of Economic Decision Making
  • Review of Terms
  • Keynesian Economics
  • Budget Deficit
  • Treasuries
  • National Debt (Public Debt)
  • Gross Public Debt
  • Net Public Debt
  • Federal Reserve System
  • Credit
  • Interest Rates

The Politics of Taxation
  • The Politics of Taxes
  • Federal Income Tax Rates
  • The first couple of dollars you make is not
  • The last couple of dollars you make is the most

The Politics of Taxation
  • Individuals find legal loopholes to avoid paying
    the highest percent of taxes.
  • Loopholes and Lowered Taxes
  • Loophole
  • Progressive Tax

The Politics of Taxation
  • Regressive Tax
  • A tax that falls in percentage terms as income

The Politics of Taxation
The Politics of Taxation
The Politics of Taxation
  • Who Pays?
  • Democrats
  • Republicans
  • The U.S. tax system

All The Different Taxes
  • Federal Income Tax Between 10 and 35 (Varies
    by income)
  • State Income Tax (Ibid)
  • SS tax 4.6 of gross
  • Medicare 1.5 of gross
  • Payroll tax varies
  • Other state and local taxes

  • What muddies the waters Deductions, credits,
    and exemptions what are some examples of these?
  • What about investments, etc?

  • Tax revenue collected - 2,674,007,818,000
  • 2012 Budget 128,900,000,000
  • How much was actually spent? Over

  • Other options Flat Tax, National Sales Tax

Questions for Critical Thinking
  • Do you believe a flat tax is a better alternative
    to income taxes based on a sliding scale?