economic and environmental policy

8/17/2019 Economic and Environmental Policy

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Eli Troen

Chapter 15

Economic and Environmental Policy

The Public Policy Process – Government action in the economic sector.

There are six stages of this process:

Emergence of Issues

• Problem Recognition – stage where society finally acknowledges the issues and

conditions as problems. !t can happen suddenly "#$%%&' ()T it normally takes time to occur "Racism&.

• Problem Transformation – stage where the policy problem become true political issues.

*eadership is essential' as many issues need the extra +umph, to enter the limelight. !nterests don-t publicie issues' as they often keep it secret to get what they want "!ron

triangle&. Politicians and the /edia especially can focus the public-s attention on issues.

Resolution of Issues

• Policy 0ormation – the stage where solutions are devised for the problems.

1pecialists often formulate policy "and are more likely to get it adopted than nonspecialists&' but Politicians also draft policy' as they know what will get through.

• Policy 2doption – 1tage where a policy or program is adopted.

The division of powers makes it difficult to enact policy' and it needs a lot of support. 3ohn 4ingdon believes that policy breakthroughs occur only when the many stages of the

policy process converge.

• Policy !mplementation – the stage where the adopted policy is put in place.

This stage relies heavily on the bureaucrats and 5udges' who administer and apply thelaw' respectively. They also take the blame.

• Policy 6valuation – the final stage where the effectiveness of the policy is examined.

7id it work as intended8 9ow is it being administered8

This is a substantial part of the process "G2' /(&

These stages can be reversed in order' but the stages remain distinct.

Government as Regulator of the Economy

6conomy – a system of production and consumption of goods and services that are allocatedthrough exchange among producers and consumers.


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2dam 1mith-s The Wealth of Nations espouses laissefaire doctrine' meaning thatowners of businesses should make their own production and distribution choices withoutgovernment intervention. +The !nvisible 9and,

;hen there is demand' producers will make the demanded good' and consumers will buy

it' and vice versa. 9e acknowledges that the government should regulate natural monopolies like railways.

4arl /arx-s Das Kapital argues that the free market exploits the workers by paying awage below what should be deserved.

9e proposed a collective economy where the workers own the means of production. The 1oviet /odel collapsed' proving this was inefficient.

0ree/arket systems are very prevalent in the world ()T they do have lots of governmentregulations. The roles vary in each economy ";elfare' 1ocialied 6conomies&

The )1-s 6conomy is a +mixed system, that has both private and public controls. This includeswelfare services. !t is more freemarket than the partially socialied 1candinavian countries. The )1 Government still regulates private business' meaning that there are restrictions.

Efficiency Through Government Intervention

6fficiency – 0irms should fulfill as many of society-s needs as possible while using as few of itsresources as possible.

Greater utput < Greater 6fficiency

1mith and other =lassical 6conomists believed that the freemarket was the ultimate way toachieve efficiency' ()T the assumption that the market always determine prices is flawed.

7esire for profit may lead producers to seek a monopoly "that doesn-t have to worryabout efficiency or competition&.

!n the late %#th =entury' economic restraints were prevalent due to the amount of monopoliation"oil' railroads' sugar&. The 0irst step towards regulation was the !nterstate =ommerce 2ct' whichregulated the railroad monopolies.

>owadays' the 0T=' 072' and 2ntitrust 7ivision "among others& regulate the economy to preserve market incentives for all.

6conomic inefficiencies can also result in businesses' called externalities. These are burdens thatsociety pays when firms do not pay the full costs of production. Pollution is an example.

Government overregulariation can also be an issue' making firms buy expensive e?uipment andthe like. !t can also be expensive for the government to implement "the 1afe 7rinking ;ater 2ct&.

This leads to government reform and costbenefit analysis of programs.


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!n response to regulatory excess' the government might err on the side of deregulariation' therescinding of excessive government regulations for the purpose of improving economicefficiency.

!f carried too far' this would result in underregulariation' which can harm businesses andlead to the exploitation of consumers and even the government.

Equity Through Government Intervention

@ery Prominent in the %#ABs and CBs

6?uity – the situation in which the outcome of an economic transaction is fair to each party. This is 5udged by outcomes' meaning whether each party enters freely and is at no known

disadvantage.

The 072' the 1ecurities and 6xchange 2ct' and the 0air *abor 1tandards 2ct "among others& areexamples of e?uitable regulariation by the government.

The Politics of Regulatory Policy

Regulation comes in waves' like during the Progressive 6ra or during the Great 7epression. The ABs and CBs reform wave was the are of +new social regulation, because they goals

included environmental protection' consumer protection' and worker safety.

The 6P2 and other similar agencies have no specific clientele' so no one firm or industry can soeasily influence policy in the agency.

Government as Protector of the Environment

ne of the most sweeping changes of public opinion has been about environmental protectionsince the %#ABs.

Rachel =arson-s The Silent Spring was essential to launching the environmentalmovement' revealing the harmful chemicals in pesticides.

Conservationism: The Older Wave

Though government environmental policy concerning pollution is relatively new' thegovernment has been involved in conservation ever since President Theodore Roosevelt and theestablishment of the >ational Park 1ystem.

The national parks are sub5ect to +dual use, policy where they are preserves andrecreational areas yet still can be used for natural resources.

ne regulation' the 6ndangered 1pecies 2ct' has called into ?uestion such protections' as manyindustries were reliant on the habitats of certain protected animals.

2fter legal battles' some concessions were made' allowing work to be done in a regulatedmanner.


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Environmentalism: The e!er Wave

Environmental ProtectionThe %#ABs was the beginning of the environmental movement as we know it today. !n %#CB' thefirst 6arth 7ay was held' and that was very important in mobiliing public interest.

The 6P2 was created in %#CB and began issuing a multitude of regulations almost immediately. President Gerald 0ord wasn-t too enamored of the 6P2 and claimed that the regulations

were costing too much annually. The economy was in a recession and the regulationswere an additional strain.

1ince the CBs' the 6P2 has neither grown nor shrunken "for all intents and purposes&.

The 6P2 has helped to clean up smog "pollution fog& and has helped to reduce the amount ofwaste discarded into bodies of water. Toxic waste emissions have been halved' food has beenmade safer' and energy efficiency has increased.

Toxic waste site cleanup has been much more arduous and slow. The 1uperfund program'

tasked with cleaning these sites' but due to company loopholes and buyouts' the program-s goal is not close to being met.

Global Warming and Energ Polic

The issue of global warming$climate change "due to the +greenhouse effect,& has been receivinga lot more attention due to the scientific community-s findings' and today' few politicians stilldeny the problem.

Results include melting of polar ice caps and rising sea levels' as well as temperatures.

The )1 is the leading source of carbon emissions' and though reducing emissions is the onlyway to slow down climate change' the )1 errs on the side of progrowth.

The 4yoto 2greement aimed to place imbalanced and unfair restrictions of differentcountries' and G. ;. (ush chose not to participate in the agreement.

/any alternative energies exist "wind' nuclear' hydrogen fuel& but they are either too costly orinefficient.

7ue to Gasoline and il dependence' it is very difficult to make these environmental changes' but polls indicate that a ma5ority of 2mericans would accept a slower economy and some 5obloss' in order to enact these regulations.

Government as a Promoter of Economic Interests

Promoting !usiness

(usinesses aren-t opposed to probusiness regulations" The government can aid business by providing loans and by giving tax breaks.

ver the last DB years' the burden of federal taxation has shifted from the corporations toindividuals' a E:% ratioF


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The most significant contribution to business includes education' transportation' and defense"through colleges and universities and other publicsector contributions&.

Promoting #abor

)p until the %#B' *aissefaire beliefs resulted in few rights for workers. There was an obvious

hostility towards labor. !n %#E' this changed with the *abor Relations 2ct' which gave workers the right tocollective bargaining and prevented business discrimination against union employees.

The government has also aided labor by enacting minimum wages and maximum workhours' unemployment benefits' more safe working conditions' and nondiscriminatoryhiring practices.

Government support for labor is not nearly as extensive as support for (usiness.

Promoting $griculture

)ntil the HBth =entury' agriculture was the dominant business in 2merica.

The 9omestead 2ct of %IAH gave government lands to settlers on the condition that theland was farmed.

Today' farm programs that assist small farmers and larger agribusinesses cost the government billions.

Risks of farming are accounted for' like weather' world markets' and other factors.

;hen the government tried to deregulate farming by reducing subsidies and other programs' infavor of a freemarket approach' the result was a very depressed farm economy' and thegovernment ?uickly abandoned that approach.

"iscal Policy: Government as #anager of the Economy

The Great 7epression marked the shift from freemarket economics to a more governmentinvolved economy.

Ta%ing and Spending Polic0iscal Policy – a tool of economic management by which government attempts to maintain astable economy through its taxing and spending policies.

The annual budget is the basis for this policy. !t allocates all of the expenditures andidentifies revenues.

3ohn /aynard 4eynes- The General Theor of Emploment& Interest& and 'one says that severeeconomic downturns can be shortened only by government spending.

1uch spending is called deficit spending' and it entails spending more than is receivedfrom taxes.

(y stimulating the economy' consumers will buy more' then stimulating production andtherefore 5obs.

The level of response should be appropriate for the severity of the downturn.

6conomic 7epression an exceptionally steep and sustained downturn in the economy.


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6conomic Recession a less severe downturn.

4eynes stated that the government should spend a lot more during a depression and a little bitmore during a recession.

Demand(Side Stimulation7emand1ide 6conomics a form of fiscal policy that emphasies +demand,. Government canuse increased spending or tax cuts to place more money in consumers- hands and therebyincrease demand.

!ncreased spending is a tool for severe economic crises' ()T it should not be the only response. 7uring the #Bs' the )1 was in an economic downtown' but due to the budget deficit

"spending more than taking in& of past years' increasing spending would have onlyincreased the already large national debt' the total amount the )1 owes creditors.

(y the late #Bs' the )1 had finally achieved a balanced budget' meaning that thegovernments- tax and revenues for the year were roughly e?ual to its expenditures.

This led to a budget surplus' a time when the federal government received more in taxand revenue than it spent. This was due to a surging 6conomy and unparalleled growth.

>ow' the budget deficit has increased exponentially' due to wars and recession.

6very day' the government spends about JD (illion 7ollars' about the amount a businesscontributes in a year.

Suppl(Side Stimulation

1upply1ide 6conomics a form of fiscal policy that emphasies +supply,. 2n example ofsupplyside economics is a tax cut for business.

This theory was the cornerstone of President Reagan-s economic policy' +Reaganomics,. 1upply1ide stimulates supply as opposed to consumer demand

2s a result of this policy' the tax cuts that were given to businesses ended up resulting in extremeoverall losses' as the gains from the economic growth were dwarfed by the tax losses.

The tax cuts only furthered the growing deficit.

President George ;. (ush also employed this economic policy' additionally decreasing thecapitalgains tax' the tax that individuals pay on money gained from the sale of the capital asset'such as property or stocks.

2gain' this only further served to increase the deficit' threatening to cancel out theeconomic growth.

The deficits were called +unsustainable, by 2lan Greenspan' the 0ederal Reserve=hairman.

)ontrolling Inflation

9igh unemployment and low productivity are the main problems that the government is set up tofix. 2nother important one is inflation' the general increase in the average level of prices ofgoods and services.


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To fight inflation' the government can cut spending or increase taxes' therefore reducingspending and decreasing the amount of 5obs.

The Process of Politics of "iscal Policy

0iscal Policy is decided yearly by the President and =ongress through the budget.

The !udgetar Process

• The 6xecutive (ranch

The ffice of /anagement and (udget "/(& uses the President-s directive to issueguidelines for the executive agencies- budgets.

The agencies prepare budgets that are sent back to the /(. The /( reviews the proposals and then finalies an overall budget for the President.

F The 2gencies tend to want more money' ()T the /( has to balance the re?uests with thePresident-s plans. F

The /( focuses on 7iscretionary 1pending' which includes defense' foreign aid' education'national parks' highways' etc. Though it is called +discretionary,' it is not really' because a President would not be able

to slash all defense spending or the like.

The President then works over the budget to align it with administration goals' and when it isfinished' the President sends it off to =ongress.

• =ongress

=ongress turns to the =ongressional (udget ffice "=(&' which is the congressionale?uivalent of the /(. The =( overlooks the budget for any inaccuracies or mistakes.

The 9ouse and 1enate (udget committees draft a +budget resolution,' which is aguideline for spending' and it allocates money between categories.

The 9ouse 2ppropriations =ommittee then reviews the budget' reviewing each agency-sre?uest. The subcommittees can choose to increase or decrease the allocations.

The (udget is then submitted for a fullhouse vote. !f approved' the legislation is thensent to the President for approval or veto.

The budget then takes effect on ctober %st' the begining of the government-s fiscal year.

Partisan DifferencesPolitics is a karge part of fiscal policy.

The 7emocrats have worked to support lowincome individuals and working class

2mericans. They are sensitive to rising unemployment' and they often respond well torecessions with increased government spending. This does lead to higher interest rates. Republicans try to avoid any additional spending' so as to not harm businesses in any

way.

7emocrats favor a graduated$progressive personal income tax' where the tax rises with increasedincome. Republicans prefer to keep the taxes low' contending that it supports investment andeconomic growth.


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#onetary Policy: Government as #anager of the Economy$ II

/onetary Policy – a tool of economic management' available to government' based onmanipulation of the amount of money in circulation.

Too much money in circulation < inflation Too little money in circulation < slow economy

The *ed

The 0ederal Reserve 1ystem regulates all national banks' additionally deciding how muchmoney to add or remove from the economy "all while trying to prevent inflation$deflation&.

The 0ed can increase or reduce the amount of money that banks are re?uired to keep onreserve. (y increasing this rate' less money is in circulation.

The 0ed can increase or reduce interest rates' which affects borrowing and investment. 2lower interest rate results in a larger money supply.

Though 0iscal and /onetary policies can be debatable in effectiveness' /onetary Policy is much?uicker to be implemented than 0iscal Policy. =ongress is often slow moving' ()T the 0ed is

faster.

Republicans and 7emocrats differ over which tool to use: Taxing or 1pending.

The Politics of the "ed

Though the power of the 0ed in the economy is often overstated "it is only one part of thewhole&' it is a vital component of )1 6conomic Policy.

Kuestions arise: ;hose interests does the 0ed serve8 1hould an unelected body hold so much power8 etc.

The 0ed isn-t impartial' but it is typically more concerned with inflation and the moneysupply than it is with politics.

Though they aren-t elected "presidential appointments&' each member can be easilyremoved if the position is abused.

;hen the 0ed was first created' it had no concept of /onetary Policy' ()T over the pastcentury' the 0ed and the Government' too' have played a significant role in the )1 economy'helping it to prosper and grow.

+1tagflation, – ;hen inflation is high but the economy is depressed and low. This occurred during the %#CBs.

Polls have shown how very few 2mericans truly understand the role of the government in theeconomy.

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