What is purpose of public policy?• Public Policy = attempts by

which govt seeks to address a specific issue or problem• Purpose? • To solve a social problem• counter threats• pursue particular objective

Policy Making Process• Identify the problem(s) – leads to

setting the political agenda (issues people believe require govt action)• Devise a means of solving the

problem – policy formulation• Implement the policy – typically

carried out by govt agencies and/or law enforcement• Evaluate the policy – often done

through cost-benefit analysis

How is public policy created? • Process of creating is very

political• Many diff groups have influence

–formal institutions like Congress, president, courts and bureaucracy and informal institutions like interest groups, the media and the people• And don’t forget role of the

IRON TRIANGLE!

AP Questions on Policy---• Often ask about interplay among Executive Branch,

Legislative Branch and Bureaucracy in making policy• Think about what each branch does related to the

subject area!! • Think about reasons generally why bur. given

discretion and independence • What are they?

• Think about effects of divided govt on policy making –what are they?• Control of Congress by one party and presidency by

other makes more difficult to enact legislation• Control of 2 chambers of Congress by opposing political

parties makes it more difficult to pass legislation

Why are bureaucratic agencies given independence in establishing policy?• Remove politics from policy making decisions (i.e., EPA)• Congress/president can abdicate responsibility for difficult decisions

by delegating decision-making power• Bureaucratic Agency relies on expertise when making decisions and

policy• Bureaucratic Agency more efficient it making policies

Economic Policy • Always the same goal!! Decrease deficit,

unemployment & poverty. • Increase wealth, prosperity • Question is HOW??

• Laissez-Faire Economics – • Adam Smith, supports free competition

• Keynesian Economics• Supports use of Govt spending and taxing to help stabilize the

economy • Supply-Side Economics

• Reagan administration – answer to inflation is to reduce govt regulation and cut taxes so that businesses will produce more products and hire more employees

• Democrats – percolate up – govt should aid disadvantaged citizens, will produce more wealth for all• Republicans – trickle down – with less govt and low

taxes, owners of business and the rich will do well and wealth will generate jobs and income for poor

President’s Economic Team• Sec of Treasury, Council of Economic

Advisers, Budget director and sometimes US Trade representative. • Choices made to influence economic

policy depends on political party, ideology and which economic theory they believe will generate economic growth

Monetary vs. Fiscal Policy• Fiscal policy = use of taxing and

spending and the budget to affect economic activity • Govt spending can be financed by

increasing taxes or borrowing. According to Keynes, govt should run a budget deficit – should spend more than it receives • Obama followed this path to speed

economic recovery –• Extended unemployment benefits• Food stamp program• Reduced SS taxes

• Monetary Policy: • Regulating money supply• Controlling inflation/deflation• Adjusting interest rates to regulate the

economy• Adjusting bank reserve requirements• http://

www.youtube.com/watch?v=rWNlw0lkQEU

How does Pres influence fiscal policy?

• Go back to rule – what does Pres do that relates to subject area? • What is fiscal policy?• Pres pwrs?

• Exec branch influences fiscal policy bc pres proposes/prepares the federal budget• White house OMB recommends the

budget • President signs/vetoes legislation

(related to taxing, spending and borrowing)

How does Congress influence fiscal policy?

• Congress passes federal budget• Congress creates tax and spending

legislation• Congressional Budget Office (CBO)

advises Congress on economic policies

Major Player in setting monetary policy -- FRB

• Federal Reserve Board –chairman is major player• Federal Reserve has its own sphere of

influence over the economy through monetary policy, most important agency in US monetary system• Run by Board of Governors = 7 full time

members appointed by president with approval of ??• Federal Open Market Committee –

determines the future growth of money supply and other important economy-wide financial variables

Organization of the Federal Reserve System

• Provides system for transferring checks from one bank to another and holds reserves deposited by most banks, credit unions etc • Regulates the amount of money in

circulation• Tight Monetary policy – if money too

tight, Fed increases interest rate that it charges banks, making it more expensive to borrow (goal = slow economy)• Loose policy – Fed lowered interest rates

in hopes of stimulating borrowing by business and individuals

Why is Federal Reserve Board given independence in establishing monetary policy?

• Removes politics from monetary policy decision making• Congress/President can abdicate

responsibility for difficult decisions by delegating decision making power• FRB relies on expertise when making

decisions• FRB makes economic policies

efficiently

President as Chief Bureaucrat• Makes appointments • Issues executive orders relating

to bureaucratic implementation of laws or operation of bureaucracy• Can use white house staff to

control bureaucrats – eg Office of Management and Budget and recommending bureaucracies budgets

President’s use of bully pulpit• President’s powers – using bully

pulpit – the use of the president's position in American society as a means to push an agenda through speeches, appeals to American people (ie can use State of Union address as means of influencing public)

Social Security • Social Security taxes established 1935 –

guarantees minimum level of pension benefits to all people (currently set at age 65)• How funded? 6.3 percent tax on employee’s

wages, employers match equal percentage (yes rich pay more, capped at $118,500)• Not a private fund! People today pay to

support retirees today. • Problem? Baby boomers! More retired

people collecting than working.• By 2030, only 2 workers for every recipient

and unless changes made, contributions will have to be increased

Social Security• Solutions? • Raise Taxes• Increase age eligibility (70? Or other

age)• Privatize Social Security – allow workers

to choose to invest their contributions. • Problems with this?