Social and Fiscal Policy

1. Social and Fiscal Policy

2. Agenda • Goals of social/fiscal policy • Quick history of social/fiscal policy • Types of social/fiscal policy

3. Fiscal Policy Thinkers • Locke; life, liberty and property. Written law, enforcement, impartial judge there to regulate the ‘free’ market • Adam Smith: laissez-faire • The invisible hand: individual economic transactions create a greater good for all • Values efficiency over equality • Keynesianism: the idea that the government can stimulate a slow economy by increasing public spending or cutting taxes • Pay people to dig a hole then pay them to fill it in • Milton Friedman: government involvement in the economy is a restriction on individual liberty

4. Fiscal Policy Fiscal policy is less redistributive and has three goals: • Ensure a healthy economy (bank regulation, education) • Protect the welfare of the citizens and promote public good (environmental/safety regulation, infrastructure, OSHA, EPA, Consumer Product Safety Commission) • Regulate competition (regulators, FCC, SEC)

5. History of Fiscal Policy • Prior to Great Depression, market ruled subjectively • After the Great Depression, people hold the government responsible for a healthy economy • Congress preferred; more national economy = desire for one national regulation better than the inconsistencies of different state laws • Establish the SEC

6. Credit crisis explained

7. Where did the free market fail? • The “Fed”: 12 regional banks that make loans to other banks Independent: 14 year terms, appt by Pres, confirmed by Senate. Head is for 4 year and renewable. Why so removed? • Discount rate: rate for loans. The base and then each add on top of it. • Reserve requirements: regulates the amount of cash and negotiable securities kept in the bank • Open-market operations: cash flow in economy • Federal funds rate: banks loaning to other banks

8. Fiscal Policy tools • Regulation: direct government control of conduct • Taxation: all taxes discriminate • Progressive (to whom much is given much is expected) • Most income tax • Regressive (to whom little is given much is expected) • Sales tax • Spending OMB vs. CBO • Mandatory spending (interest, Social Security, Medicare); Why make spending mandatory in legislation? 60% of budget • Deficits: the amount gov’t spending exceeds revenue in a fiscal year

9. Social Policy Social policy is redistributative and has three goals: 1. Protect against the risks and insecurities that most people face over the course of their lives; illness, disability, temporary unemployment, reduced earning From what? Capitalism? Ourselves? 2. Promoting equal opportunity Right past wrongs? Right to clean water? Safe food? Education? Health care? 3. Alleviation of poverty Great controversy

10. History of Social Policy • Prior to the Great Depression, very little social policy • Deserving vs. undeserving poor. Who determines? • Dependence on charity, church, local government • Federalism at play • Great Depression: poverty could be caused by a flawed economy, not just personal irresponsibility • Social Security Act of 1935, Minimum Wage, • Johnson’s Great Society/War on Poverty • Federalism plays a strong role: 50 different insurance regulators, business licensing practices, incorporation (Deleware example), taxes. Pros? Cons?

11. Key definitions • Contributorysystem: pay in to qualify (Social Security, Medicare) • Noncontributory: no pay in to qualify (Medicaid, housing, food stamps) • Means testing: When potential recipients of a benefit must establish their genuine need • Entitlements (55% of budget): • once qualified, can’t remove without due process • 14thamendment, established by Goldberg v. Kelly • Congress can remove the entitlement (unlike a right) • Huge in the long term growth, once in, hard to get out. • Public good: something supplied by the government because it cannot be provided by the marketplace

12. Social Security Social Security, 1935, contributory, not means • A contributory welfare program into which working Americans contribute a percentage of their wages and from which they receive benefits after retirement • Benefits not in proportion to contributions • What do mandatory deductions for Social Security say about citizens’ ability to plan for their own future security? • Also indexed to inflation but not to life expectancy • ½ of Americans, only pension plan and rising • If Congress leads in domestic policy, why did it take Bush to push to reform it? • Think of the interests involved in change • AARP • Do interests offset interests? 5 x amount of ads to kill • Alternatives: lockbox, private accounts, investment

13. Health Care Policy • Medicare, 1965, not means, contributory • Part of the prescription drug bill ($8.1 trillion in obligations) • A form of national health insurance, public funded implemented for the elderly • Medicaid, 1965, means, non-contributory • A federally financed, state-operated program providing medical services to low-income people

14. Farm Policy • Farm subsidies • Money given to farmers to offset losses in the market (i.e. when farmers cannot sell goods at the market price) or to pay farmers to not grow certain crops that would drive up the supply of certain goods • The top 10 recipients received over 70% of the benefits ~$120,000/year • Very little goes to family farms – most subsidies go to so-called factory farms

15. Education Public schools • A major distributive/redistributive policy • Usually funded through property taxes • But what about people who don’t have children? • What about states that have no tax base?

16. Differences in philosophy • Libertarians: government social programs are a potential threat to personal freedom • Conservatives: government social programs are a matter of individual responsibility not the result of the economic system • Liberals: government social programs are the result of an unequally structered economic system nota matter of individual responsibility

17. MU Funding SourcesFiscal Year 2010 Tuition 260,658,698 14.3% Supplemental Fees 10,054,786 0.6% Extension Tuition and Fees 17,160,540 0.9% Other Student Fees 34,045,697 1.9% Federal Appropriations 15,349,825 0.8% State Appropriations 257,049,610 14.1% Grants and Contracts 173,278,944 9.5% Recovery of Indirect Costs 33,500,000 1.8% Gifts, Endowment & Investment Income 63,093,148 3.5% “Enterprise” Operations* 953,788,453 52.5% Total Revenue 1,817,979,701 Student Financial Aid (excludes loans) 105,973,304 *See the following slide for detail

18. “Enterprise” Operations Hospitals & Clinics 582,909,972 61.1% University Physicians 127,929,198 13.4% University Stores 52,368,722 5.5% Residential Life 37,851,079 4.0% Athletics 34,949,254 3.7% Campus Dining 23,286,447 2.4% Veterinary Medicine 15,219,090 1.6% Research Reactor 10,065,336 1.1% Parking 7,765,539 0.8% Agriculture 7,337,661 0.8% College of Education 6,279,526 0.7% KOMU 6,275,000 0.7% Medical Contracted Services 3,815,039 0.4% Continuing Education 3,720,803 0.4% Other < $3M 34,015,787 3.6% 953,788,453

19. Change in General Operating Funding Sources TUITION 27% 54% 70% 39% STATE SUPPORT 7% 3%

20. State Tax Appropriations to Higher Education in MissouriNational Comparison* • Increase from 2008 to 2009 was 9.8% • Ranked 3rd among 50 states • Appropriations to MU increased 4.2% • Appropriation per Capita Ranking • 2008 - 47th • 2009 - 45th *Information obtained from the Grapevine Report published by Illinois State University