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16 Economic and Social Welfare Policymaking
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Unemployment rate 10% in Great Recession
Underemployment rate
Tracked by Bureau of Labor Statistics (BLS)
Inflation Rise in price of goods and services
Consumer price index (CPI)
Averages 4%
16.1 Two Major Worries:
Unemployment and Inflation
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Laissez-faire
Monetary policy and the "fed" Federal Reserve Board
Meets in secret; not accountable to Congress
Manipulating the amount of money
16.1 Policies for Controlling the
Economy
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Fiscal policy: Keynesian v. supply-side
economics Taxing, spending, borrowing
Keynesian economic theory
Supply-side economics
16.1 Policies for Controlling the
Economy
Keynesian Economic Theory (Liberal)
• Governments active participation in economy
• Expansionary Fiscal Policy
– Government spending stimulates economy
– Cutting taxes another way government can create demand
• Contractionary Fiscal Policy
– Government can decrease demand by cutting spending and increasing taxes
Supply- Side Economics( Conservative)
• Decreasing government involvement in economy
– People will be forced to work and save more
• Cutting taxes increases the money supply
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16.1 FIGURE 16.1 How the Obama
administration's predictions of the impact of
the 2009 stimulus plan went awry
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"Political business cycle" Presidents control economy to win elections
Private sector dominates economy Federal government is ¼ of GDP
Impact of government policies gradual
16.1 Why It Is Hard to Control the
Economy
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16.1 16.1 Laissez-faire economic theory
holds that government intervention in
the economy
a. Is needed during recessions and
depressions
b. Is key to preventing inflation
c. Is detrimental to economic growth and
prosperity
d. Is necessary only when interest rates
are too high
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16.1 16.1 Laissez-faire economic theory
holds that government intervention in
the economy
a. Is needed during recessions and
depressions
b. Is key to preventing inflation
c. Is detrimental to economic growth
and prosperity
d. Is necessary only when interest rates
are too high
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Biggest government expense
Only 17% goes to poor
16.2 Types of Social Welfare
Policies
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Entitlement programs Social Security, Medicare
Largest and most expensive
16.2 Types of Social Welfare
Policies
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Means-tested programs Food stamps, Medicaid
Fear of dependency
16.2 Types of Social Welfare
Policies
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16.2 16.2 Which of the following is an
example of an entitlement program?
a. Food stamps
b. Medicaid
c. Postal service
d. Medicare
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16.2 16.2 Which of the following is an
example of an entitlement program?
a. Food stamps
b. Medicaid
c. Postal service
d. Medicare
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Income distribution Sense of justice and equality in a democracy
Relative deprivation increasing
Wealth versus income Income is amount collected in given time
Wealth is value of assets
1/3 of wealth held by 1%
1/3 held by 90%
16.3 Who's Getting What?
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16.3 FIGURE 16.2 Increase in income inequality
and the rise of the top 1%
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Poverty line $11,139 in 2010
46.6 million Americans poor in 2010 15.2% of population
Demographics of poverty Feminization of poverty
16.3 Who's Poor in America?
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16.3 If landmass were divided like wealth
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16.3 FIGURE 16.3 Poverty rates for persons with
selected characteristics: A comparison of the
official and supplemental measures
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Taxation Progressive
Proportional
Regressive
16.3 How Public Policy Affects
Income
– Progressive taxation - hits upper income brackets more heavily • Graduated income tax
– Proportional taxation – hits upper and lower brackets equally
– Regressive taxation - hits lower income brackets more heavily • Sales tax
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Government Expenditures Transfer payments – Redistributive Policies
Social security, unemployment benefits, food stamps, etc.
16.3 How Public Policy Affects
Income
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16.3 TABLE 16.1 The major social welfare programs
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16.3 16.3 What percentage of Americans
live below the poverty line?
a. 5.3%
b. 10%
c. 15.2%
d. 25.6%
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16.3 16.3 What percentage of Americans
live below the poverty line?
a. 5.3%
b. 10%
c. 15.2%
d. 25.6%
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Personal Responsibility and Work
Opportunity Reconciliation Act (PRWORA) States would run their own programs
Two year limit for benefits
Lifetime maximum of 5 years
From AFDC to TANF
Reforms were effective Benefit dollar amounts declined
Number of recipients declined
16.4 Ending Welfare as We Knew It:
The Welfare Reform of 1996
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16.4 FIGURE 16.4: How welfare reform
drastically reduced the welfare rolls
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16.4 16.4 Which of the following was a
goal of welfare reform?
a. Reduce the number of people living in
poverty
b. Reduce the number of children who lack
medical insurance
c. Reduce the number of people receiving
welfare benefits
d. Reduce the need for job training to get
people off welfare
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16.4 16.4 Which of the following was a
goal of welfare reform?
a. Reduce the number of people living in
poverty
b. Reduce the number of children who lack
medical insurance
c. Reduce the number of people
receiving welfare benefits
d. Reduce the need for job training to get
people off welfare
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Popular program
Modest benefits Average $1,229/month
Most expensive public policy But fiscally sound
Surplus depleting since 2010
16.5 Growth of Social Security
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Politically difficult Older Americans have high voting rate
Reform proposals Bush: Put 1/3 into private investments
Obama
Increase age to receive benefits
Lower inflation raises
Reduce benefits for wealthy recipients
Raise contribution amounts
16.5 Reforming Social Security
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16.5 16.5 Which of the following was a
Social Security reform proposed by
President Bush?
a. Lower age to receive benefits
b. Increase contributions
c. Raise age to receive benefits
d. Divert funds to stock market
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16.5 16.5 Which of the following was a
Social Security reform proposed by
President Bush?
a. Lower age to receive benefits
b. Increase contributions
c. Raise age to receive benefits
d. Divert funds to stock market
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The European welfare state
Taxes and benefits
Individual v. government responsibility
16.6 Social Welfare Policy
Elsewhere
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16.6 16.6 What is the main difference in
the American and European attitudes
toward poverty?
a. Americans believe poverty is your own
fault
b. Europeans believe poverty is a result of
circumstances beyond your control
c. Both A & B
d. Neither A nor B
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16.6 16.6 What is the main difference in
the American and European attitudes
toward poverty?
a. Americans believe poverty is your own
fault
b. Europeans believe poverty is a result of
circumstances beyond your control
c. Both A & B
d. Neither A nor B
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Problems of free enterprise addressed
via democracy Government regulation demanded
Limits to economic freedom
Groups unequal in political resources Policy inertia
16.7 Democracy and Economic
and Social Welfare Policies
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Liberals and conservatives disagree Liberals advocate more govt. intervention
Conservatives want less
Welfare state too big or too small? Depends which side you are on
16.7 Economic and Social Welfare
Policies and the Scope of
Government
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16.7 16.7 The viewpoint that the welfare
state is too large and serves an
undeserving clientele is likely to be
espoused by
a. A liberal
b. A conservative
c. Both
d. Neither