1. Public Policy • Results from battles among citizens, groups, and public officials • Determines who gets what, where, and how • Shapes future outcomes • Creates arrangements that confer advantages to some political actors and disadvantages to others • Occurs in context of tension between capitalism and democracy • Policies debated openly and determined within democratic institutions • Outcomes responsive (at least in part) to public opinion and what mobilized groups demand • Democratic features of policy making constrained and distorted by • Advantages capitalism confers • Patterns of inequality • Uneven access to political institutions

2. Economic Policy • Gross Domestic Product (GDP) = total goods and services produced • Government has grown since 1950s (Table 9.1) • increasing activities of government (social welfare and defense) • Size of government small in comparison • Tax burden light: lower % of GDP in form of taxes (Figure 9.1) • Spends less as % of GDP (Figure 9.2) • Leaner benefits and fewer public services • Small public sector employment • Government lacks power to manage economy and significantly influence behavior of private firms • Corporate managers enjoy greater autonomy • Firms subject to fewer government regulations • Modes and institutional constraints: Fiscal (budget) and monetary policy (interest rates) • Fiscal policy divided between Congress and President • Monetary policy controlled by “independent” Federal Reserve Board (FED)

3. Fiscal Policy • Manipulates total amount of government revenue and spending to manage overall demand • Budget deficits stimulate economy (unemployment) • Budget surpluses restrain economy (inflation) • Budget more than fiscal tool – establishes priorities and values of government • Determines winners and losers; distributes costs and benefits • Reveals relationships of power • Budget process involves partisan, institutional, and interest group conflict • Starts with President and goes to Congress (budget committees) • Appropriations bills emerge and are sent to President

4. Taxes • Highly contentious – level, types, shares • Receipts rose from 1983-2000 (20% GDP) • Bush’s tax cuts reversed trend (16.5% by 2003) • Decline in revenue, rising federal deficits => debt payments strain government’s ability to provide services • Federal government (Table 9.2) • Corporate income taxes declined (loopholes, credits, accounting gimmicks, shelters); supposed to be 35% (not 20%) • Excise taxes (alcohol, cigarettes, gas) down • Social Security payroll taxes up • Progressive (rich pay larger proportion of income) or Regressive (tax rates same regardless of income)? • Regressive (Figure 9.3): tax burden roughly same for all income groups • Incentives through exemptions, rebates, deductions (mortgage interest; depreciation for equipment; IRAs) • Tax expenditures = public subsidies through favored tax treatment; not as visible; less likely to arouse conflict • “subterranean politics” results in very complex tax code

5. Spending • Groups struggle over how much should be spent; what it should be spent on • Government expenditures have increased (1950, 15.6% of GDP; 2008, 21%) • Government does more (Social Security; Medicare/Medicaid; EPA; other functions) • Federal outlays for defense and welfare (Table 9.3) • Welfare state expenses account for 63.6% of all spending (2008) • Welfare and warfare account for 93% of all outlays • All other tasks get remaining 7% • 2/3 of all government spending mandatory (debt, entitlement programs (e.g., Social Security, food stamps, Medicare)) • 1/3 discretionary spending (jurisdiction of Appropriations Committees) • Largest is defense (1/2 of all discretionary spending)

6. Monetary Policy • Manipulation of interest rates, cost of money • High rates slow economy; low rates encourage borrowing, spending • Differential impact on groups • Controlled by Federal Reserve Board (FED) • Determines interest rate banks pay to borrow money (low rates increase money supply) • Buys and sells government bonds (puts more money into circulation) • Sets reserve rate banks must hold on deposits (higher rates decrease money supply) • FED (created in 1913) substantial autonomy (independence from Congress and President) insulates monetary policy from democratic control • Subject to capture by banks => representatives in policymaking bodies; mobilization of bias (what is good for banks is good for economy) • Changes under Bernanke (took over from Greenspan, 2008) • Support for regulation of financial sector; FED lender of last resort • Purchases and guarantees (over $5 trillion) dwarfs bailout money • More active, more regulatory oversight, more investments (make it more target of lobbying, jeopardizes independence) • Remains very cozy with financial sector (What’s good for Wall Street is good for America)

7. Regulation • Authorized by Congress, bureaucracy sets rules firms must follow • U.S. has comparatively low level of government regulation • Government regulation necessary because markets are not self-regulating, will not protect public interest and social values • Progressive and New Deal Eras (first wave) popular pressure prompted government to create economic regulation for specific industries (prices, standards, competition, licenses) • Interstate Commerce Commission (1887) – regulate railroad rates and routes • Federal Trade Commission (1914) – protect consumers from unfair business practices • Food and Drug Administration (1931) – protect consumers from tainted foods, harmful drugs • Securities and Exchange Commission (1934) – protect investors from fraud • Agencies often captured by industry; “revolving door”; serve interests of industry rather than public • Second wave (1960s) demanded social regulation, across industries (antidiscrimination, environmental regulations, workplace safety) • Civil rights agencies – protect against discrimination • Environmental Protection Agency (1970) – develop/enforce environmental standards • Occupational Safety and Health Administration (1970)– establish/monitor workplace safety and health standards • Consumer Products Safety Commission (1972) – ensure product safety • Prompted counteroffensive by business community calling for “regulatory reform” • Ongoing conflict over standards, enforcement, and industry capture