Policymaking in Action

Regulatory policy

Through regulatory policy, the federal government supervises the actions of individuals, businesses, and government institutions. Historically, the desire for regulation grew out of widespread unhappiness with the actions of profit-making businesses. For example, railroads in the late 19th century often charged more for shipping over short distances than over long ones. This pricing made sense for their business needs, but it was politically unacceptable because the nation's numerous small farmers were more likely to send goods a short distance, and the pricing was perceived as discriminatory. This and other discriminatory rate practices led to the creation of the Interstate Commerce Commission (1887) and rate regulation. During the Progressive Era, exposés about the way the food and drug industries operated resulted in Congress's passing the Pure Food and Drug Act (1906), which created the Food and Drug Administration (FDA).

Regulatory activities include setting fair prices for goods and services; granting licenses and franchises; establishing safety standards for the workplace and transportation; providing resources, such as hydroelectric power from federal dams, and setting rates; and monitoring and enforcing compliance with statutes relating to discrimination.

The scope of regulatory policies can be seen in the array of independent commissions and agencies responsible for their implementation. For example, the Federal Communications Commission is responsible for regulating broadcast media. In addition, there are the Securities and Exchange Commission (SEC), which watches over the stock markets and stock transactions; the EPA, which safeguards the environment; the Federal Energy Regulatory Commission (FERC); the Occupational Safety and Health Administration (OSHA) and Consumer Product Safety Commission (CPSC), both of which were created in response to the failure of business to adequately protect its workers and customers; and the National Transportation Safety Board (NTSB). Also, many federal regulatory agencies have their counterparts at the state, and even local, level.

Criticism of regulation and deregulation

Regulatory policy is usually criticized because of the costs it imposes on business. American consumers and workers generally bear those costs: consumers through the price of products; workers when their place of business must compete with unregulated foreign concerns. Nevertheless, setting domestic policy through regulation is tempting to federal legislators because it allows them to take action on a problem and command a change of course without directly paying for anything they order. Another concern with government regulation of industry is that policy decisions often respond to political considerations rather than technical ones, which may mean hurting businesses for no good reason, or it may give certain businesses the opportunity to manipulate regulations so that they make more profit.

Deregulation began in the 1970s and was based on the notion that regulation was suppressing economic competition. The actual record has been mixed, however. Deregulation does seem to produce greater product innovation and more new company startups, but it has also resulted in the collapse or merger of inefficient large companies. For example, the deregulation of the airline industry decreased fares as numerous small carriers went into operation. Most quickly failed, leading to greater consolidation. In the telephone industry, the deregulation that came with the breakup of AT&T has created a rash of confusing rate charges and services that many people feel are just too complicated to follow. The lack of regulation over the savings industry is seen by many as a cause of the extremely costly savings-and-loan crisis of the late 1980s. California began rationing electrical power in early 2001 in the wake of changes in the state's regulatory scheme, leading some opponents to add it to the list of deregulation's failures. However, others argue that the government never stopped interfering with state utilities, so the industry was not really deregulated.

Social welfare policy

Social welfare policy deals with the causes and effects of poverty. Just as Upton Sinclair's The Jungle (1906) brought the need for regulation of the meatpacking industry to the public's attention, so did Jacob Riis's How the Other Half Lives (1890) focus attention on urban poverty. After decades of legislation and federal programs to address the problem, Michael Harrington reminded those who read his The Other America in the 1960s of the persistence of poverty in our affluent society. Efforts such as Lyndon Johnson's “War on Poverty” produced only limited results. In the 1990s, more than 35 million Americans were poor, as measured by the federal definition of poverty, which is an income of less than about $14,500 per year for a nonfarm family of four.

Social Security

The first federal attempt to deal with poverty came in 1935 with the Social Security Act. Under the Social Security program, employers deduct money from the paychecks of their employers, match it with an equal amount of their own money, and then send it to the federal government to provide for a pension program. Most people think of Social Security as a form of insurance or savings—that is, they put aside the money, and it is saved for their retirement—but this impression is incorrect. Rather, Social Security uses the money paid by today's workers to cover the pensions received by today's elderly. Current workers have no tangible guarantee that society will continue redistributing wealth to the elderly when their turn comes. Indeed, as the number of able-bodied workers declines and the number of elderly increases, the Social Security program is extremely unlikely to continue paying benefits at the rate it does now.

Several changes in the Social Security program have added to its cost. Money is paid out of the pension program for disabled workers and for the survivors of deceased workers. People who were not provided for in the original legislation—the self-employed and many government workers—are now covered. Benefits are expanded to include cost-of-living adjustments known as COLAs. As a result of all these general benefits, payroll taxes were increased and benefits reduced in the early 1980s—yet the Social Security trust fund is still running out of money. The aging of the population has raised serious questions about the fund's long-term solvency.

The “War on Poverty”

Lyndon Johnson's “War on Poverty” focused on employment and health care for the elderly and the poor. The Economic Opportunity Act of 1964 created the Jobs Corp, the Neighborhood Youth Corps, Head Start, and community action programs that the poor had a hand in running. With the exception of Head Start, many of these projects had their funding cut as the Vietnam War escalated.

Medicare, enacted in 1965, provides basic health insurance and hospitalization coverage for people over the age of 65 and is paid for by both workers and retired persons. Under Medicaid, medical benefits for the poor are administered by state programs, with the federal government paying for a portion of the costs. Both programs fall far short of a comprehensive national approach to health care, yet they are already by far the biggest drain on the national treasury of anything in the federal budget.

Recent trends and challenges

Entitlements, the costs associated with such social welfare policies as Social Security and Medicare, make up more than 50 percent of the federal budget. These costs increase as more people become eligible for benefits, a situation difficult to control because it is very much tied to the aging of the population. Congress and several administrations have found it difficult to reduce or eliminate entitlements, particularly for the elderly, who are represented by a powerful lobby in the American Association of Retired Persons (AARP). Some changes have had to be made, however. In addition to increasing payroll taxes and reducing COLAs, the retirement age will be 67 by 2007.

Budget cutters have had far more success trimming aid to the poor, who lack the political clout of the elderly. The main target was a program named Aid to Families with Dependent Children (AFDC), usually just called “welfare.” Critics thought that the program created a cycle of poverty by encouraging single mothers to have more babies to increase their benefits. Those babies would then grow up in poverty without adequate parental supervision and therefore either turn to crime or create more illegitimate children so that they could receive welfare. Although this myth contained only an element of truth, it made AFDC much less popular than Social Security (which enjoyed a contrary myth that the elderly were just getting back what they had paid in). President Clinton signed into a law a Republican measure replacing AFDC with a new program called Temporary Assistance for Needy Families (TANF), which was much more aggressive at forcing beneficiaries to find work.

Social welfare policy also affects other issues, such as immigration and homelessness. Federal mandates require the states to shoulder a heavy financial burden to assist immigrants. This responsibility has sparked a major debate over just what social services, if any, both legal and illegal immigrants are entitled to. The country is also trying to find a policy approach to reduce homelessness. The number of homeless in the United States has increased significantly beginning in the 1980s, due to a recession and spending cuts in public housing, drug treatment, and mental health programs.