Transcript Chapter 16 Economic and Social Welfare

Chapter 16
Economic and Social
Welfare Policymaking
Jenna Grunwald, Hannah Schaeffer, Rachel Seagren,
Brooke Knutson and Hannah Schaeffer
16.1 Economic Policymaking
● "Sociotropic" voting- assessing overall rate of
employment and unemployment more than individual
circumstances
● Social Welfare Policies: Policies that provide benefits,
cash or in-kind, to individuals, based on either
entitlement or means testing
● Democrats stress importance of keeping unemployment
low- appeal to working class concerned w/employment
Republicans prioritize battle against inflation- appeal to
voters w/more money to save and invest
16.1 Two major worries
Unemployment and inflation
● Unemployment rate: (Measured by the Bureau of labor
Statistics) the proportion of the labor force actively seeking
work but unable to find jobs
● BLS conducts surveys of 60,000 households each monthreports on first Friday
● Unemployment rate higher for young adults than other groups
● Underemployment rate: (Measured by BLS) statistic includes (1)
people who aren't working and are actively seeking a job, (2)
those who would like to work but have given up looking, and (3)
those who are working part-time because they can't find full
time position
16.1 cont...
● Inflation: a rise in price of goods and services
● BLS uses consumer price index (CPI): the change in cost
of buying a fixed basket of good and services
● Inflation rises:
o 1973- Arab oil-producing nations cut off flow of oil to US to
protest American support for Israel during war w/ Egypt and
Syria
o 1979- Iranian revolution disrupted flow of oil from Persian Gulf
o 1991- Iraq invasion of Kuwait, rose in anticipation of shortages
● Since then rate below 4%, briefly exceeded 5% in 2008
16.1 Policies for controlling Economy
● Laissez-faire: the principle that government
should not meddle in the economy
o President Herbert Hoover's strategy during 1929
stock market crash and unemployment, crushed
next election by Roosevelt's New Deal programs
● Since then both parties recognize capitalism
must be somewhat regulated by federal
government
16.1 Monetary Policy
Monetary Policy and the Fed
● Chairman of Federal Reserve Board most important economistdoesn’t need congressional support, huge impact, deliberates in
secret w/public statements as clues to future actions
● Monetary Policy: government manipulation of supply of money
and credit in private hands
● Monetarism: economic theory holding that the supply of money
is the key to a nation’s economic health, with too much cash and
credit in circulation producing inflation
● Monetarist advise rate of growth of money supply should not
exceed gross domestic product (GDP)
16.1 cont...
● Federal Reserve System: main instrument for making
monetary policy in the US. Created by Congress in 1913
to regulate lending practices of banks and thus the
money supply (Fed)
● Buy + sell bonds to see if banks have money to lend
● Federal Open Market Committee (FOMC)- policy
making body
● 1977 amendment to Federal Reserve Act- Congress
imposed dual mandate: to promote max sustainable
output and employment and to promote “stable” prices
16.1 Fiscal Policy
Keynesian v Supply-side Economics
● Fiscal Policy: use of federal budget-- taxes, spending,
borrowing-- to influence economy. Almost entirely
determined by President and Congress
● Keynesian economic theory: (John Maynard Keynes)
government spending and deficits can help economy deal
w/ups and downs
● Supply-side economics: (first applied during Reagan
administration) key task for fiscal policy is to stimulate
supply of goods, as by cutting tax rates
● Agree on one fundamental point: government’s responsibility
to use fiscal policy to control economy
16.1 Controlling the Economy
● billions of economic choices made by
businesses and consumers
● Private sector larger than public sector and
dominates economy
● Government spends only ¼ of GDP
● cannot control- uncontrollable expenditures
(Social Security)
● takes time to implement economic policy
16.2 Types of Social Welfare Programs
Entitlement Programs: Government programs providing
benefits to qualified individuals regardless of need
● Often referred to as Social Insurance programs
● Rarely controversial and often overwhelmingly popular
since everyone is entitled to them
● Do not have to be poor to get entitlement, nor does
being rich disqualify you
o Ex: Social Security and Medicare
16.2 cont...
Means-Tested Programs: Government programs providing
benefits only to individuals who qualify based on specific needs
● When the poor is seen as “Victims”, these are not
controversial
o Liberals- see these programs as helping others when they
are going through hard times
● When poor seen as “lazy”, there is much more controversy
o Conservatives- these programs can encourage
dependency and discourage work
● Ex: Food Stamps and Medicaid
16.3 Income, Poverty & Public Policy
● The US has one of the world’s highest per
capita incomes.
● 2010 median household income: $49,445
● No industrialized country has wider
extremes than the US, and these extremes
continue to widen.
16.3 Who get’s what?
Income Distribution: The way the national
income is divided into “shares” ranging from
poor to rich
● In the US, the rich have gotten richer, and others have
seen their incomes stagnate.
Relative Deprivation: A perception by an
individual that he or she is not doing well
economically in comparison to others
16.3 The increase in income inequality
& the rise of the top 1 percent:
16.3 Income vs. Wealth
Income: The amount of money collected
between any two points in time
Wealth: The value of assets owned
● Studies of wealth show even more inequality
than those of income.
16.3 Poverty
Poverty Line: The income threshold below
which people are considered poor, based on
what a family must spend for an "austere"
standard of living, traditionally set at three
times the cost of a subsistence diet.
16.3 Orshansky vs. Obama
Statistician Orshansky:
Poverty line is the cost of the department of Agriculture's
subsistence diet multiplied by three.
Obama Administration:
Takes into account housing utilities, child care, medical
treatment and variations in cost of living.
● Legislation was made based on the first one, so it
remains the official measure of poverty.
16.3 Poverty & Distribution of Wealth
In US in 2010:
● 46.6 million in poverty or
15.2% of the population
● Over half of Americans
between 25 and 75 will
spend at least one year in
poverty during their lives.
16.3 Characteristics of Poverty
Feminization of Poverty: The increasing concentration of
poverty among women, especially unmarried women and
their children.
● 30% of single mom families are in poverty compared to
10% of two parent families.
● Poverty rates are higher for: African Americans,
Hispanics, Unmarried women, children, and inner-city
residents.
● Poverty used to be a large problem for the elderly until
Social Security.
16.3 Poverty Rates for persons with selected
characteristics
16.3 How Public Policy Affects Income
Since government spends 1 out of every 3
dollars in the American Economy, it is bound to
have a major impact on citizen’s income &
wealth. The two principal ways government
affects income & wealth are through:
1. Taxing Powers
2. Expenditure Policies
16.3 Taxation
Progressive Tax: A tax by which the government takes a greater share of
the income of the rich than of the poor - for example, when a rich family
pays 50% of its income to taxes, and a poor family pays 5%
Proportional Tax: A tax by which the government takes the same share
of income from everyone, rich and poor alike
Regressive Tax: A tax in which the burden falls relatively more heavily
on low-income groups than on wealthy taxpayers. The opposite of a
progressive tax, in which tax rates increase as income increases
Earned Income Tax Credit: Also known as the EITC, a refundable
federal income tax credit for low- to moderate-income working
individuals and families, even if they did not earn enough money to be
required to file a tax return
16.3 Government Expenditures
Transfer Payments: Benefits given by the government
directly to individuals - either cash transfers, such as Social
Security payments, or in-kind transfers, such as food
stamps and low-interest college loans
● The poverty rate for the elderly declined from 35% in
1959 to 9% in 2010 because of social security &
medicare.
● Many poor people have been raised above the poverty
line from transfer payments.
16.3 Major Social Welfare Programs
16.4 Helping the Poor? Social Policy and
the Needy
● Social Security Act of 1935: Created both the
Social Security Program and a national
assistance program for poor families, usually
called Aid to Families with Dependent
Children
● Created by Franklin D. Roosevelt to deal
with the depression
16.4 cont...
War on Poverty:
● Launched by Lyndon Johnson in 1964
● Spurred by civil rights movement
● Food stamps and other programs
War on Anti Poverty programs:
● Ronald Reagan in 1981
● cut welfare benefits and lower number receiving
● “Welfare proved to be a failure”
16.4 cont...
One of the major issues of Welfare is the negative
connotation it has
Stereotypes associated with Welfare:
● “Deadbeat dads”- ran out on families leaving them
on Welfare
● “welfare queens”- collect money they don’t deserve
due to the broken system
● “race coded”- African Americans, more commonly
on Welfare, perceived as lazy
16.4 Welfare Reform
● Personal Responsibility and Work Opportunity
Reconciliation Act (enacted by Clinton): 1996 welfare
reform law which implemented Temporary Assistance
for Needy Families program
o Each state would receive a fixed amount of money to
run its own welfare programs
o people on welfare would have to find work within
two years or lose all their benefits
o There would be a lifetime maximum of five years for
welfare
16.4 cont….
● Temporary Assistance for Needy Families (New name
for welfare): Replacing Aid to Families w/Dependent
Children as program for public assistance to needy
families, requires people on welfare to find work
within 2 years and sets lifetime maximum of 5 years
● Due to Welfare reform welfare has been greatly
reduced
● Welfare spending remains unpopular compared to
most other governmental expenditures
16.4 How Welfare reform drastically reduced the
Welfare rolls
16.5 Social Security: Living on
Borrowed Time
● Social Security Trust Fund: The "account" into which
Social Security employee and employer contributions are
"deposited" and used to pay out eligible recipients
● Officially Old Age, Survivors and Disability Insurance
(OASDI)
● 2011- first year more paid out of social security than paid
in
● when social security was established average life
expectancy was 65, now it is 78
● 75 million baby boomers retiring between 2010 and 2030
16.5 Reforming Social Security
Options for Social Security in the future:
● gradually increase the age by which people would be
entitled to benefits
● revise the inflation adjustment formula benefits so that
recipients would receive less of a raise each year
● reduce benefits for the retirees who have substantial
income from other sources
● raise the maximum contribution that workers pay in to
the system
16.6 Social Welfare Policy Everywhere
Most European countries have many more social welfare
programs than the U.S.
● 50% of a European’s income goes to taxes
● Europeans tend to support greater government
responsibility for poverty and social welfare concerns
● Majority of Americans believe it is an individual concern
● Europeans have more trust in their government
concerning social welfare than Americans
16.7 Understanding Economic and
Social Welfare Policymaking
● Seeking balance between both competition and
compassion is at the center of most policy disagreements
● Americans decided to give up certain economic freedoms
for the good of society as a whole by regulating minimum
working age, and creating safe working conditions
● Social welfare programs are often kept in place even when
they exceed budget and increase in size because of
tremendous supporters of the programs
16.7 cont...
Liberals believe that government should help
the “deserving poor” and elderly with social
welfare programs and we should help the free
market by eliminating its “imperfections”
Conservatives believe that government should
let the economy do its own thing and more focus
on how to fix the “imperfections of government”