Public Policy: Perspectives and Choices 9781685850739

Citation preview

Public Policy

Fifth Edition

Public Policy Perspectives and Choices Charles L. Cochran and Eloise F. Malone

b o u l d e r l o n d o n

Published in the United States of America in 2014 by Lynne Rienner Publishers, Inc. 1800 30th Street, Boulder, Colorado 80301 www.rienner.com and in the United Kingdom by Lynne Rienner Publishers, Inc. 3 Henrietta Street, Covent Garden, London WC2E 8LU © 2014 by Lynne Rienner Publishers, Inc. All rights reserved

Library of Congress Cataloging-in-Publication Data A Cataloging-in-Publication record for this book is available from the Library of Congress. ISBN 978-1-62637-075-3 (pb : alk. paper)

British Cataloguing in Publication Data A Cataloguing in Publication record for this book is available from the British Library.

Printed and bound in the United States of America The paper used in this publication meets the requirements of the American National Standard for Permanence of Paper for Printed Library Materials Z39.48-1992. 5 4 3 2 1

For Thomas J. Sullivan, MD, who always fought the good fight on behalf of children’s health care

Contents

xi xiii

List of Illustrations Preface

1 Why Study Public Policy

1

What Is Public Policy? 3 Conceptual Models for Policy Analysis 4 Wedge Issues 12 Ethics and Public Policy 16 Conclusion 18

2 Tools for Policy Analysis

21

An Interdisciplinary Perspective 22 Political and Economic Anxiety: Blending Two Models 23 Adam Smith and Classical Optimism 27 Liberalism in the United States 32 Normative and Positive Analysis 36 The Problem of Scarcity 37 Public Policy Typology 41 Conclusion 44

3 Polarized Politics: The Policy Context The Founders: Masters of the Art of Compromise 50 Federalism and Fragmentation 52 The Legislative Branch 53 The Filibuster: A Tool of Obstruction 55 The Executive Branch 60 Franklin D. Roosevelt Remakes the Presidency 61 The Activist Judiciary 63

vii

49

viii

Contents Potential Reforms in Campaign Policy 68 Increasing Inequality and Party Choices 68 From Factions to Political Parties 71 The Changing Profile of the US Electorate 74 Party Politics and Immigration Policy 76 Conclusion 77

4 Political Economy: The Basis of Public Policy

83

Adam Smith and the General Welfare 83 The Haunting Specter of Karl Marx 84 The Political Impact of the Great Depression 86 The Realist Critique of Keynes 90 Employment and Inflation 96 The Uneasy Relationship Between Politics and Economics 97 Ideology Triumphs over Policy 98 Conclusion 102

5 Funding Public Policy: From Theory to Practice

107

Taxes as a Policy Instrument 110 The Antitax Campaign 112 Federal Taxes Paid vs. Benefits Received by States 114 Who Pays Taxes in the United States? 120 Types of Taxation in the United States 121 Principles of Taxation: Fairness and Efficiency 124 The Benefit Principle 126 The Ability-to-Pay Principle 128 Government Spending as an Instrument of Public Policy 130 Social Security and Reducing Poverty Among the Elderly 131 Unemployment Insurance 136 Conclusion 137

6 The Politics and Economics of Inequality The Promise of Equality in the First New Nation 144 Economic Crises Force New Public Policy Responses 147 Income Distribution and the Widening Gap 149 Income Distribution and Poverty 150 Relative vs. Absolute Poverty 154 Inequality of Wealth and Income 157 Public Policies to Reduce Inequality 159 The Living-Wage Concept 163 Immigration Policy and Inequality 164 The Bias in Favor of Equality 165 A Functional Theory of Inequality 167 Why Growing Income Inequality Is a Public Policy Problem 170

143

Contents Factors Driving the Increase in Income Inequality 173 How Inequality Harms the Middle Class 174 Conclusion 176

7 Education: A Troubled Federal-State Relationship

183

The “Crisis” in Education and the Fear of Failure 185 Investment in Human Capital Is Essential in a Democracy 187 Costs and Benefits of Human Capital Investment 191 Five Myths About Public School Education 193 Assessing Public School Reform 203 Common Core State Standards 208 Obama’s College Plan 209 Conclusion 211

8 Criminal Justice: Responding to Evolving Concerns

219

New Fears, Changing Attitudes 220 Federal vs. State Crimes 220 How Much Crime? 222 Crime: A Definition 226 Causes of Crime: What Do We Know? 226 Characteristics of the Criminal Justice System 229 Police Theory 234 Prisons: Perspectives on Punishment and Correction 235 The Philosophy of Reform 237 The Implications of Punishment and Reform 239 Ingredients of Violence: The War on Drugs 240 Ingredients of Violence: Gun Control 242 Ingredients of Violence: Poverty and Crime 247 White-Collar Crime 248 Cybercrime 253 Conclusion 256

9 Health Care: Diagnosing a Chronic Problem The Quality of Health Care in the United States 265 Comparing Health Care Costs in OECD Countries 266 What the United States Receives for Its Health Care Spending 267 Should Health Care Be a Right or Privilege? 273 Health Care and the Tragedy of the Commons 275 Why Health Care Only Recently Became a Major US Policy Issue 277 How Employer-Sponsored Insurance Became the Norm 277 Who Really Pays for Employer-Sponsored Insurance? 281 How the Profit Motive Influences the Health Insurance Market 282 Medicare: The Expansion of Government-Sponsored Health Coverage 284 Medicaid 286

263

ix

x

Contents The Uninsured 287 The Pressure Builds for Health Care Reform 289 The Individual Mandate 294 Why the Republican War on the ACA? 295 Conclusion 297

10 Housing: Public Policy and the “American Dream”

305

The Housing Bubble and the Financial Crisis of 2007–2009 310 TARP, HAMP, and HARP 316 Long-Term Housing Policy Considerations 318 Rental Housing 320 The Homeless 321 Conclusion 324

11 The Environment: Issues on a Global Scale

329

Evolving Environmental Themes 330 Market Failure and the Environment 332 Environmental Politics in the United States 335 The New Climate Plan 342 Policy Debates on Environmental Issues 342 Hazardous Wastes 351 Population Growth 353 International Population and Environmental Policies 356 Ethics and Environmentalism 363 Conclusion 365

12 Foreign Policy: Rethinking National Security

369

The Major Goals of US Foreign Policy and Security 370 Foreign Policy Until World War II 371 The United Nations and the Renunciation of the First Use of Force 372 George W. Bush and a New Justification of Force as an Instrument of Policy 375 Obama’s First-Term Course Correction 379 Evolving Foreign Policy Problems 380 US Military Spending 389 Spending for War and Peace 392 The US Obsession with the Notion of Its Own Decline 393 Conclusion 396

Bibliography Index About the Book

403 415 425

Illustrations

Tables 3.1 How Groups Voted in the Presidential Election, 2012 5.1 Major Tax Expenditures, 2013 5.2 Incomes and Taxes, 2013 6.1 Share of Aggregate Income Received by Each Quintile and Top 5 Percent of Households, 1980–2012 6.2 Mean Household Income Received by Each Quintile and Top 5 Percent of Households, 1980–2011 6.3 Federal Poverty Guidelines by Family Size, 2014 6.4 Distribution of Income by Quintile for Selected OECD Countries, 2012 6.5 US Mean Household Income and Wealth 6.6 US Distribution of Wealth, 2001–2010 7.1 Average Annual Income by Highest Degree Earned, 2009 7.2 Unemployment Rates by Educational Attainment, 1995–2010 7.3 Average NAEP Score by State Teacher Contract Laws, 2009 8.1 Crime in the United States: Offense and Population Distribution by Region, 2011 8.2 Prison Sentences for Savings and Loan Offenders and Selected Federal Offenders 9.1 Health Outcomes Among OECD Nations 9.2 Health Care Spending in Selected OECD Countries, 2011 9.3 Factors in Health Care Spending in OECD Countries, 2011 9.4 Supply and Utilization of Doctors and Hospitals in Selected OECD Countries, 2011 9.5 Total Hospital and Physician Costs for Selected Medical Services, 2012 xi

75 119 120 152 152 153 156 158 159 191 192 197 223 250 266 268 270 271 272

xii

Illustrations

10.1

Characteristics of New Privately Owned Single-Family Houses Completed, 1970–2007 Rating US Foreign Policy Goals as “Very Important,” by Party World’s Top Fifteen Military Spenders, 2013

311 371 391

Figures 2.1 Production Possibilities Curve 3.1 The Fragmentation of Power in the US Government 3.2 The Top Takes Off: Income Distribution, 1966–2007 4.1 US Gross Domestic Product, 1929–1941 4.2 US Unemployment Rate, 1929–1941 5.1 Government Spending by Function, 1955 and 2015 5.2 Total OECD Countries’ 2010 Taxes as Percentage of GDP 5.3 Benefits Received by the States for Every Dollar Paid in Federal Taxes 5.4 Sources of Federal Tax Revenue 5.5 Tax Incidence: Progressive, Proportional, and Regressive 5.6 Average Income by Source for the Elderly, 2008 6.1 Actual, Estimated, and Ideal Distribution of Wealth 9.1 Implications of User- and Third-Party-Payer Health Care 9.2 The ACA and the Nonelderly Uninsured Population, 2012 10.1 Estimated Distribution of Housing Subsidies, by Income Quintile, 2004 11.1 Comparison of a Market with Positive and Negative Externalities

39 52 69 90 91 109 115 116 122 129 133 160 281 292 309 336

12.1 12.2

Preface

A course in public policy is perhaps the most valuable course a student can take. This new edition of Public Policy: Perspectives and Choices is designed to give students the tools they need to understand the policy issues—“Obamacare,” school loans, immigration, the economy, gun control, the use of military drones, welfare programs, and much more—that are discussed in newspapers, on television, and on Internet blogs every day. Citizens in a democracy have a responsibility to participate in civic affairs, and understanding how to analyze policy issues is critical to being an informed citizen. As Thomas Jefferson famously wrote, “If a nation expects to be ignorant and free, in a state of civilization, it expects what never was and never will be.” But being an informed citizen is, even with the wealth of information available at one’s fingertips, even more difficult today than in Jefferson’s time. Today well-financed lobbyists and pundits work to frame every political issue and “spin” the dissemination of information to the public in ways that will reinforce partisan goals while undermining the position of adversaries. Such efforts are not new, of course, but the sophistication with which they are carried out now far surpasses the capacity of politicians of the late 1700s. Thus, we combine in this text a clear explanation of the basic concepts and methods of the policymaking process with a keen focus on how values influence policy choices. We also introduce analytic tools that will allow students to evaluate public policies in terms of their effectiveness in achieving public policy objectives. The basic questions in a discussion of public policy are most often who pays and who benefits, and we continue to give careful attention to those questions. In this new edition, however, we give more attention than ever to the principles underlying efforts to build a just and fair society, to how those principles are applied, and to the intensifying struggles between proponents of clashing views about what constitutes legitimate government activity. We emphasize that the goal of public policy is to go beyond the narrow appeal of selfxiii

xiv

Preface

interest to build “a more perfect union” and to “promote the general welfare.” Because individual welfare is inextricably bound up with the welfare of our fellow citizens, policy studies must inevitably raise issues about the social and ethical relationships among all citizens. Whether one’s perspective is that government, particularly in a democracy, is a necessary evil or a benign force for good, government involvement is inevitable. The goal is for wise policymaking to provide an economically efficient and humane society. *** We are indebted to so many people for their help in writing this book that it is difficult to know where to begin in thanking them. We both benefited from parents who imparted to us a strong sense of social justice and fairness. They were keen observers of the world in which they lived, and they argued on behalf of a more level playing field. They encouraged us to be informed about political issues and emphasized the necessity to be open to new ways of seeing things. This debt cannot be repaid, only acknowledged. Mimi Cochran has been most important in reading and critiquing each chapter and encouraging us in our effort to bring the project to a successful conclusion. We acknowledge debts to our colleagues and our students, especially midshipmen at the US Naval Academy. Our own research and understanding are more complete because of the thoughtful and challenging questions raised by our students, which in turn have made us better teachers of public policy. We owe special thanks to Katherine Malone, who provided us with much needed technical support in producing many of the figures included in the book. Also, Michael Malone critiqued and contributed information regarding cybersecurity for Chapter 8. From the book’s first incarnation to this current edition, reviewers—too numerous to name but deeply appreciated—read early drafts and offered invaluable comments. The entire staff at Lynne Rienner Publishers has been supportive, and all deserve acknowledgment. We particularly appreciate Lynne Rienner’s encouragement to produce this edition. For any errors that remain, we blame each other. —Charles L. Cochran and Eloise F. Malone

1 Why Study Public Policy

Citizens of the United States are characterized by their optimism grounded in a notion of progress: the present is better than the past, and the future will be better than the present. This optimism was reinforced by several “narrow escapes” that seemed to validate the notion that “despite its imperfections, the system works.”1 However, since the turn of the present century, one seems to find an increasing anxiety that the United States might be running out of luck. The future may not be better than the past. The first session of the 113th US Congress was so gridlocked that just sixty-five bills became law, fewer than in any other year in recorded congressional history. Many members of Congress exhibit an antigovernment populism that views government as no more than a necessary evil. The nation’s involvement in two unpopular wars, budget deficits, the deepest recession since the Great Depression, growing economic inequality, and political gridlock have left many citizens resigned to elections that fail to bring the hopedfor change. Politicians are increasingly unwilling to set politics aside in seeking “common ground” for the greater good. A view that the nation’s political and private leadership is concerned primarily with protecting their own interests at the expense of average (and even comfortable) citizens appears to be widely shared. As a result, many in the United States no longer think of government as a precious national institution. They are alienated from political and nonpolitical institutions and, in frustration, increasingly forgo participation in those institutions and focus on their more immediate concerns. Public opinion polls consistently indicate that people worry about their economic well-being more than anything else. They worry about educating their chil1

2

Public Policy

dren and meeting their mortgage payments. They worry about the high cost of health care for their families and the needs of elderly parents. They are concerned about the possibility of another economic slowdown and the threat of unemployment. Economic concerns cut across all age groups. Students worry about high tuition rates, paying their rent, and finding employment and paying off student loans when they graduate. Many people also express concern for broader economic issues like federal budget deficits, taxes, interest rates, and inflation. Many are increasingly aware that their own personal well-being is somehow related to broader social trends and government policymaking decisions. Precisely because of the current stresses in US society, a course on public policy may be the most timely social science course a student can take. More important than ever is that citizens understand the importance of the communitarian idea of the framers of the constitution: that citizens of this country have inalienable rights and social responsibilities for each other. The society they bequeathed to the following generations has the difficult mission of balancing three elements that frequently conflict: the state, the market, and the community. The challenging task is to encourage each of these elements to flourish in its appropriate role. As a whole, a public pursues the ideal of the good society, or an improvement in “the general welfare.” While the vision of the good society may never be quite attainable, it guides policy efforts, and it provides a metric by which progress can be measured. Virtually every aspect of an individual’s life from birth to death is affected in countless ways by public policy decisions of government. Most citizens are born in hospitals that are subsidized by the government through statutes such as the Hospital Survey and Construction Act of 1946, which provides public subsidies for the construction of hospitals. Over 90 percent of US children attend public schools. Practically every citizen will, at some time, receive money from the government through college student loans, unemployment compensation, antipoverty programs (e.g., food stamps, earned income tax credits), Medicaid, Medicare, or Social Security. All will pay some form of taxes to the government. More than one of every six US workers are employed by the government. Who makes public policy decisions, as well as how these decisions are made, is thus of utmost importance. Today, public problems are more complex, interconnected, and global than in the more agrarian society at the turn of the nineteenth century. These policy problems require rigorous analysis along with an understanding of the strategies needed to turn imaginative policy ideas into practical problem solving in making policy choices. Why does the government engage in some public policies and not others? Why has the scope of public policies changed over the past century, and why are the policy roles of government different in different countries?

Why Study Public Policy

What Is Public Policy? No unanimity can be found on a precise definition of public policy. Public policy* can be described as the overall framework within which government actions are undertaken to achieve public goals, with a good working definition of public policy, for our purposes, being the study of government decisions and actions designed to deal with a matter of public concern. Policies are purposive courses of action devised in response to a perceived problem. Public policies are filtered through a specific policy process, adopted, implemented through laws, regulatory measures, courses of government action, and funding priorities, and enforced by a public agency. Individuals and groups attempt to shape public policy through the mobilization of interest groups, advocacy education, and political lobbying. Official policy provides guidance to governments over a range of actions and also provides mutual accountability links between the government and its citizens. The policy process includes several key aspects: a definition of the problem to be addressed, the goals the policy is designed to achieve, and the instruments of policy that are employed to address the problem and achieve the policy goals. Public policy is the heart, soul, and identity of governments everywhere.2 Elected officials are voted into power by the sovereign citizens of a country due to those citizens’ desire to affect public policy. The potential policies advertised by candidates and the party in question during the election campaigns, as well as previous policies espoused and their implementation or nonimplementation when each side was in power, influence citizens to vote for (or against) placing candidates in a position of authority. Policy analysis describes the investigations that produce accurate and useful information for decisionmakers. The importance of sound public policy analysis in achieving various goals related to the growth and development of a nation and its citizens cannot be overemphasized. For example, the adoption and implementation of public policies helped the nation recover from the Great Depression and mobilized the country to respond to acts of aggression in World War II. Public policies passed key social welfare legislation such as the Social Security Act of 1935, the Civil Rights Act of 1964, and the Voting Rights Act of 1965, along with the legislation that created the Medicare and Medicaid programs, to cite just a few. Conversely, without sound public policy planning, a nation languishes and cannot keep up with an ever-changing world. The recent politics of obstruction in Washington is alarming to many public policy scholars and is reflected in the disapproval of the performance of Congress by the public in opinion polls, precisely because it threatens the ability of the nation to keep up with the changing global scenario.

* Key concepts are indicated in boldface at first definition in the book.

3

4

Public Policy

For all of these reasons public policy studies are of the utmost importance, as they help scholars, politicians, political scientists, and a better-informed public to analyze every policy in depth, identifying its strengths and weaknesses, in order to improve policy choices, formulations, and implementation. The feedback process helps the nation remain on par with the world’s most rapidly developing and progressive nations.3 In a broad sense, the analysis of public policy dates back to the beginning of civilization. The social sciences emerged as a separate set of disciplines in the latter part of the nineteenth century. Critical to the development of the social sciences was the determined effort to borrow the empirical toolbox of the scientific method from the natural sciences to improve the analytical rigor in the study of human behavior. Social scientists share the conviction that rational scientific methods can be used to improve the human condition. The academic study of public policy emerged as a major subfield within the discipline of political science in the 1960s. Political scientists began to model the policymaking process.

Conceptual Models for Policy Analysis Models are widely used in the social sciences to investigate and illuminate causal mechanisms and understand the conditions in which certain outcomes are expected to occur. Some conceptual models are simply used to clarify our thinking about politics and public policy. These models, like maps, are representations of reality. Maps, merely depicting some aspects of reality, are partial representations of the world, in that they include some features of the world but not others, and therefore they have limited accuracy. The map’s value is in whether it is similar enough to the world to be useful for a specific purpose. In this sense the map reflects the interest of the map user.4 In the same manner, different models can identify important aspects of policy problems and provide explanations for public policy and even predict consequences. The following is a selection of some of the models frequently used by policy analysts to highlight certain aspects of policy behaviors. Institutional Model

The institutional model focuses on policy as the output of government as the ultimate decisionmaking authority. The model emphasizes constitutional provisions, judicial decisions, and common law obligations. Strictly speaking, a policy process does not become a public policy until it is adopted, implemented, and enforced by some government institution. Government institutions are crucial in that once a policy is officially adopted, the government provides legitimacy to that policy by enforcing it through government institutions. Government policies provide recipro-

Why Study Public Policy

cal legal rights and duties that must be recognized by involved citizens. Governmental policies also extend universally to all members of the society. Finally, governments alone have a monopoly on the legitimate use of coercive force in society and on sanction violators. Some very successful interest groups focus their efforts on influencing critical institutions of government rather than winning popular support. The National Rifle Association (NRA) is an apt illustration of an interest group that generally finds its interests opposed by prevailing public opinion. The NRA has prevailed over overwhelming public opposition as measured in public opinion polling. The organization convinced the Supreme Court to interpret the Second Amendment to mean that the Constitution establishes firearm ownership as a right of citizenship enforceable against state and local governments that would unduly restrict that right in District of Columbia v. Heller (2008). The NRA, aware that the government has granted the right of gun ownership, appears to be ever mindful that it could rescind that right. A suspicious NRA is ever alert that any restraint of that right by the government could be the first step in a government conspiracy to seize all guns from private gun owners. The organization encourages its members to provide implacable opposition to politicians exhibiting insufficient zeal in defending the NRA’s view on that single issue. In contrast, the majority who favor some restrictions of gun sales tend to be multiple issue voters, with other issues outweighing concerns over firearms. The NRA provides targeted campaign contributions to support friends and oppose political adversaries. It also provides major support to the American Legislative Exchange Council to influence state-level legislation to expand gun owner rights, such as “stand your ground laws,” across the country. The NRA’s phenomenal success closely tracks the institutional model as it demonstrates how policy output can be influenced by agents’ putting pressure on government institutions. Its efforts recognize that both the national and state governments receive independent legal authority from their citizens. Incremental Model

This model focuses on how public policy decisions are made. Those who support this model suggest that public policy is primarily a continuation of past government activities with only incremental changes. Incrementalism, a conservative ideal, holds that current policy and programs possess a certain legitimacy as they already exist. Groups who are beneficiaries support the continuation of the status quo, and politicians generally accept the legitimacy of established programs and are inclined to continue them because the consequences of adopting and implementing completely new or different programs are not easy to predict. In short, concentrating on increases, decreases, or modifications of current programs is simpler and less risky for policymakers than embarking on totally new programs.

5

6

Public Policy

The model is often criticized because it does not require the establishment of clear goals. It tinkers with current programs with the hope that goals and alternatives will become clearer over time. However, this model is defended as the way that policymakers actually make decisions. In fact, some argue that breaking down the implementation of major changes into smaller steps is necessary to make the changes more acceptable. For example, an administration proposal to raise the minimum wage by a significant amount is broken down into smaller increments over several years. Political conflict and stress is increased when decisionmaking focuses on major policy changes that raise fears of significant gains or losses if the change does not have bipartisan support. The search for consensus and bipartisanship can be expected to begin with choices close to current programs and policies or positions previously endorsed by the political party now out of power. The Affordable Care Act (ACA) is an illustration of the strain when one party refuses to engage in bipartisan policy compromise. The ACA is a set of free-market reforms based on ideas developed in conservative think tanks like the Heritage Foundation. Instead of depending on taxpayer dollars, citizens take responsibility for their own health care. Instead of government programs, they use the free market. Where government aid is necessary, it is to be provided by encouraging free-market competition. As recently as 2007, Democrats and Republicans introduced a bipartisan bill that included an individual mandate and was viewed as a conservative idea. The Republican Party, led by Senator Jim DeMint (R-SC) turned the health care debate into a personal battle against President Barack Obama, saying, “If we’re able to stop Obama on this, it will be his Waterloo. It will break him.”5 The opposition to major change, even one that the opposing political party previously endorsed in some form, illustrates the high risks associated with major rather than incremental change in a highly charged partisan atmosphere. In fact, the ACA became law, legal challenges failed, and despite a public relations disaster in the rollout of the program, a new status quo has been established. Now opponents who want to repeal the ACA would, if successful, have to replace it with something suspiciously similar. The high costs and risks of significant changes in policy, without bipartisan support, illustrates why many policymakers are more likely to push for incremental changes. In truth an administration faced with a political system mired in gridlock can realistically expect to seek only incremental victories. For example, in 2014, by picking issues that enjoy public support, the president hoped to garner bipartisan support on issues like immigration reform, unemployment insurance benefits, and increases in the minimum wage. Group Theory

This model, also called pluralism, holds that politics represents the struggle among groups to influence public policy. Public policy at any given time actually repre-

Why Study Public Policy

sents the equilibrium reached in the group struggles. The role of government is primarily to establish the legal and regulatory rules in the group struggle. Politicians engage in bargaining and negotiating with groups in an effort to form a majority coalition of groups. The political parties are viewed as coalitions of interest groups. The model holds that individuals and groups have overlapping memberships, which prevents any one group from moving too far from moderate values and any single interest from consistently dominating other groups. Pluralists claim that the power of each group is checked by the power of competing groups, resulting in a marketplace of policymaking in almost perfect competition. Critics of pluralism claim that in fact different groups have vastly different resources. Some interests, such as those representing businesses or affluent professions, are very well organized and financed, while others, such as those representing poor or immigrant groups, have fewer financial resources and are more poorly organized, undermining any claim of group equilibrium. Some critics of the theory claim that the model ignores the role public officials play in public policy making. For example, President Obama has a great deal of influence over which policies get on the agenda or are given serious attention. Also, not all interests are represented, and in still other cases, a few groups may monopolize the influence over a policy area. This model has lost considerable support because it ignores some aspects of policymaking included in other models. Elite Model

The elite model views public policy as reflecting the preferences and values of the power elite. The theory claims that society is divided between the elites who have power and the nonelites who do not. Every society has more nonelites than elites. Democracy is often thought to be good for the poor, since the poor greatly outnumber elites. Conventional wisdom suggests that democracy will lead to the choice of policies that reflect the preferences of the poor. In democratic societies the elites are concerned about the danger posed by the nonelites who could unite and overwhelm them at the ballot box and redistribute wealth downward. In this regard, James Madison is recorded in the minutes of the secret debates of the Constitutional Convention as stating that the new system “ought to be so constituted as to protect the minority of the opulent against the majority.”6 The elites are united in the values of protecting private property and limited government. They tend to have higher income, education, and status, which more than makes up for their lack of numbers relative to the nonelites. They use their money and organization to defend the status quo. The elites shape mass opinion while mass opinion has little influence on elites. Generally, government officials tend to adopt and implement policies decided on by the elite, which flow in a downward direction to the masses. According to the

7

8

Public Policy

model, elites permit the assimilation of some nonelites into the elite category, but only after they accept elite values, in the process encouraging system stability and reducing the threat of revolution. This model also supports the notion that changes in public policy should be small and incremental and reflect changes in elite values (not demands from the masses). The implication of the model is that the state of policymaking rests primarily with the elites. The masses are generally apathetic and poorly informed. Mass opinions are manipulated by elites through control of much of the “mass media.” Thus, the mass has only an indirect influence on policy decisions. In fact, many of the policy issues debated will generally be issues in which citizens’ preferences for public policies differ along dimensions other than economic status. Many policy issues are inserted into political campaigns with the intent to divide voters along religious, ethnic, geographical, and cultural dimensions, rather than along straightforward economic lines. Recent data provide evidence of the strength of the elite model. For example, the conservative majority of the Supreme Court led by Chief Justice John Roberts, the most probusiness court since the 1930s, has greatly expanded the rights of the financial elites. Most notably, the 2010 Citizens United ruling essentially allows corporations and wealthy individuals to spend unlimited sums to sway elections.7 The wealthy and corporate interests have responded by overwhelmingly directing campaign funds to fiscally and socially conservative candidates. These independent expenditures grew from $144 million in 2008 to $1 billion dollars in 2012.8 A political network led by the conservative billionaires Charles and David Koch built a maze of groups outside the campaign finance system. The network cloaks its donors in secrecy, financially outspent all other independent groups on the right, and on its own matched all the contributions of labor unions to the Democrats.9 The announced goal was to stop “government overreach” evidenced by the ACA, environmental regulations, and excessive federal spending. The elite model accepts movement from nonelite to elite status as individuals acquire wealth and accept the elite culture. The possibility that individuals can rise from humble origins to economic heights is part of the American Dream. However, as the economic gap between rich and poor has widened, the reality is quite different. People living in the United States enjoy less economic mobility than their peers in Canada and much of Western Europe. In fact, the United States is one of the least mobile countries of the developed nations, for two oft-cited reasons: (1) the sheer magnitude of the gap between the wealthy and the rest in the United States and (2) the lack of unionization relative to many of its peer countries, which may lower wages.10 The United States of today has the most unequal distribution of wealth and income than at any time since the 1920s. Today, the richest 400 US citizens own more wealth than the bottom half of the US population (150 million people).11 Notably, in 2010, Congressman Paul Ryan (R-WI) and former congressman and

Why Study Public Policy

Republican Party stalwart Newt Gingrich proposed eliminating all capital gains taxes, which would have lowered Massachusetts governor and future Republican Party presidential nominee Mitt Romney’s tax rate to 0.82 percent. In 2012, Romney realized that idea could be politically damaging. So, unsurprisingly, in 2012 Ryan proposed a new tax plan that did not mention capital gains at all, leaving the fate of capital gains unclear.12 During the presidential campaign of 2012, conservatives argued the campaign was between the “makers and the takers.” Finally, as the elite model suggests, during a time of rising income inequality, wealthier and better-educated citizens vote at higher rates than poorer, less educated people. Recent studies also suggest that voters are significantly more conservative than nonvoters on redistributive issues, a central issue in the debate about the proper scope and size of government.13 Scope of the Conflict Model

E. E. Schattschneider developed a model focused on the essential elements of public participation in the decisionmaking process. He criticized the classical definition of democracy as government “by the people” as being far from the reality.14 His working definition of democracy took into account the people’s limitations as well as their powers. Instead, he defined democracy as “a competitive political system in which competing leaders and organizations define the alternatives of public policy in such a way that the public can participate in the decision-making process.”15 Schattschneider maintained that to understand the meaning of democracy in the United States, one must be aware of how conflict determines the role people play in the political system. All conflicts contain the elements that give rise to a riot. A conflict between two individuals always attracts bystanders who want to know what the fight is about. If the spectators do not get involved, the outcome of a quarrel or a fight will depend on the skill of the two participants. Because the bystanders outnumber the original participants, their role is crucial. If they get involved in the conflict, they will determine the outcome. The central political point is that in a free society every conflict is extremely contagious. Every fight has the few who are actively involved at the center and the audience attracted to the scene. Schattschneider stated that the spectators are an overwhelming part of any political calculus because they are never really neutral. The outcome of every conflict is determined by the extent to which the audience becomes involved.16 Those who are winning in a conflict will try to limit the scope of the conflict to those already involved, so as to ensure their preferred outcome. Those who fear that they will lose will try to enlarge the scope by drawing in bystanders sympathetic to their cause. Politics is the socialization of conflict. When bystanders join the conflict, they change the nature of the original quarrel so much

9

10

Public Policy

that the original participants may lose control of the conflict altogether.17 When the scope of the conflict is significantly increased, both sides will unlikely be reinforced equally. In fact, the ability to control the scope of a conflict is absolutely crucial to achieving a favorable outcome in a political battle of wills. A good indicator of which side favors the status quo and which favors change is found by determining which side attempts to limit the scope of the conflict and which side attempts to expand it. For example, one need only recall the number of states controlled by Republicans that passed voter ID laws. The voter ID laws restricted the number of early voting days and reduced the number of polling districts in lower income and minority districts. These laws are usually justified under the pretext of preventing voter fraud and defending the integrity of election results. Voter suppression can take many forms, but they all lead to an unwarranted imposition on eligible voters trying to exercise their most basic constitutional right.18 Special interest groups influence the scope of the conflict by lobbying for specific legislation. Group theory claims that people’s interests are represented to the government by various organizations in almost perfect market equilibrium. The model holds that competition between special interest groups, such as those representing the food industry or health care groups that argue for legislation, results in compromise and moderation. Schattschneider profoundly disagreed. He pointed out that most pressure groups are probusiness and have an upper-class bias. Even most nonbusiness groups have an upper-class bias.19 These pressure groups work to improve the well-being of their relatively small group against the public interest. He maintained that pressure groups go into the public arena to change the

Case Study Voter Suppression: An Effort to Reduce the Scope of Conflict Voting is a right and civic duty for all those eligible, and government has a responsibility to protect voters from those who would interfere with that right. Politicians legitimately try to manage the scope of the conflict by persuading likely voters for the opposing party’s candidate to change their voting behavior. Campaigns are designed to highlight the strengths and wisdom of each party’s candi-

date’s respective political positions and the inferiority of those of the opponent. Voter suppression was widely used in the South to discourage minority voters through poll taxes, literacy tests, and intimidation. Then, in 1965, President Lyndon B. Johnson pushed through the Voting Rights Act, which was intended to nullify various legal strategies designed to obstruct minority voting. In continues

Why Study Public Policy

Case Study continued 1982, Section 2 of the act was amended to prohibit any practice or procedure that had a discriminatory result. No proof is required that the discrimination was intentional. Section 5 of the act covers jurisdictions that have a history of discrimination. Those jurisdictions were required to get a federal “preclearance” from the Department of Justice before implementing voting changes. The temporary sections of the law were renewed for twentyfive years by overwhelming votes in Congress and signed by President George W. Bush in 2006. (The vote in the House was 390–33 and in the Senate, 98–0.) Just a few days after the election on November 6, 2012, the Supreme Court agreed to hear the case of Shelby County v. Holder, which was limited to the question of whether the reauthorization of Section 5 of the Voting Rights Act exceeded congressional authority under the Fourteenth and Fifteenth Amendments. The Court upheld Section 5 but struck down Section 4 as being based on outdated criteria and left it up to Congress to provide new criteria. In the last several years eighteen states have enacted photo ID laws. Studies suggest that up to 11 percent of US citizens lack such identification. Supporters claim that voter ID laws are a necessary protection against voter fraud. Opponents claim that such requirements primarily affect the poor, elderly, and minority voters, who are far less likely to have a driver’s license or passport. Thus voter

ID laws are considered a suppression tactic, discouraging voters who would be more likely to vote for Democratic candidates. An estimated 5 million US citizens are denied the right to vote because of previous felony convictions. Over 3.5 million of these individuals are no longer incarcerated. The United States has less than 5 percent of the world’s population, but over 23 percent of the world’s incarcerated people, four times the world average. Several countries allow prisoners to vote, and most countries that disenfranchise prisoners allow them to vote upon their release. The United States is the only democracy that bans a large percentage of prisoners from voting after their release. This disenfranchisement disproportionately affects the poor, African Americans, and Latinos. Turnout among young, Latino, and African American voters increased as a share of the electorate in 2012. The youth vote increased from 18 to 19 percent, and the minority vote increased from 26 to 28 percent of the vote. Suppression efforts actually inspired a backlash among minorities who felt under siege. One of the most powerful messages across many demographics was to remind people that their vote was important to counter those who were kicking people off voter rolls. Thus far the primary response of the Grand Old Party (GOP) to the threatening demographics has been to try to reduce voter turnout among Democratic voters, rather than appealing to a more diverse electorate.

Sources: Ari Berman, “The GOP’s Voter Suppression Strategy,” The Nation, November 20, 2012, www.thenation.com/article/171404/gops-voter-suppression-strategy#. FairPlan2020, “Felon Disenfranchisement by State,” March 11, 2008, http://www.fairvote2020.org/2008/03/felon-disenfranchisement-by-state .html. National Council of State Legislatures, “Voter Identification Requirements,” October 17, 2013, http://www.ncsl.org/legislatures-elections/elections/voter-id.aspx. American Civil Liberties Union, “Voter Suppression in America,” www.aclu.org/voter-suppression-America, accessed April 16, 2013. National Council on Crimes and Delinquency, “Fact Sheet,” November 2006, http://www.nccdglobal.org/sites/default /files/publication_pdf/factsheet-us-incarceration.pdf; Shelby County v. Holder, 557 US 193 (2013).

11

12

Public Policy

“power ratio” in the interest of their groups. Business groups, for example, desire deregulation, fight for lower taxes, and want government to take their side against labor in conflict. The mobilized business groups increase their influence by contributing to the political candidates most supportive of their goals (most frequently the Republican Party candidates). If they gain a dominant position, they have little incentive to compromise. Thus, Schattschneider argued that the notion that pressure politics represents the whole community is a myth. Pressure politics is very selective and represents upper-income interests very well but is not well designed or successful in mobilizing support for the “public interest.” He noted that group theory concealed an important shortcoming: “The flaw in the pluralist heaven is that the heavenly chorus sings with a strong upper-class accent.”20 The scope of the conflict model, along with the group model, reinforces the elite model but focuses on how citizen involvement is related to the size of the conflict in public policy decisionmaking.

Wedge Issues If public policy issues always broke along an economic dimension, the ability of elites and masses to express their preferences would be rather straightforward and would tend to favor the preferred outcome of the more numerous nonelites. This theory might still be true despite the advantages of the elites in regard to higher voter turnout, greater financial resources to sway elections, and greater unity in supporting limited government. However, other policy issues, known as “wedge” issues, break along other dimensions, such as race, ethnicity, religion, and culture. Wedge issues are typically controversial social issues raised to create dissension within the opposing party. In the most successful scenario, the dissension may cause voter defections from the party. In recent years “gods, guns, and gays” have been the most familiar wedge issues around which public policy debates have occurred. The Republican Party’s “southern strategy,” beginning during Richard Nixon’s administration, offers a classic example of the successful use of a wedge issue to attract voters from the Democratic Party coalition. Franklin D. Roosevelt built the New Deal coalition around unionized workers, farmers, intellectuals, residents of the solidly Democratic South, and religious and ethnic minorities, including Catholics, Jews, and African Americans. That coalition began to slowly unravel after World War II as southern, white Democrats strongly resisted the party’s growing support for civil rights. Intraparty strains grew during the 1960s over the Democratic Party’s support for the Civil Rights Act of 1964, the Voting Rights Act of 1965, and the Vietnam War.

Why Study Public Policy

As a presidential candidate, Richard Nixon forged a new Republican coalition by exploiting white voters’ fears of African American demands for civil rights. Known as the “southern strategy,” Nixon’s approach led to the defeat of the New Deal coalition in the 1968 election. Nixon political strategist Kevin Phillips wrote: From now on, the Republicans are never going to get more than 10 to 20 percent of the Negro vote and they don’t need any more than that . . . but Republicans would be shortsighted if they weakened enforcement of the Voting Rights Act. The more Negroes who register as Democrats in the South, the sooner the Negrophobe whites will quit the Democrats and become Republicans. That’s where the votes are.21

The strategy was successful in realigning southern Democrats to overwhelmingly support the Republican Party. This victory came at the price of losing close to 90 percent of African American voters nationwide, who moved to the Democratic Party. The Republican Party was willing to pay this price, partly because at the time, African American turnout at the polls was much lower than the national average. As civil rights became more accepted, powerful interests found carefully scripting an appeal to white voters in the South and nationwide necessary to avoid a backlash, by sending a message about racial minorities that would be inaudible at one level but clearly heard at another, referred to in political jargon as “blowing a dog whistle.” Political elites often succeed in persuading many poor and middleclass whites to support regressive policies that are a windfall to corporations and the financial elite but actually harm the middle and working class, by inserting issues to divide voters along racial, ethnic, and cultural lines rather than along the economic line of elites versus nonelites. Many white voters, persuaded by financial elites and the conservative politicians who serve those financial elites that minorities are the true enemies, fail to recognize the connection between increase of wealth inequality, the decline of the middle class, and the Republican Party’s increasing dependence on white voters. Ian Haney Lopez has produced a sweeping account of terms that politicians use to trigger racial anxiety, such as “food stamp president” “illegal alien,” or “welfare queen,” while insisting their words have nothing to do with race.22 Dog-whistle appeals generate middle-class support for political candidates who promise to crack down on crime and illegal aliens. Lee Atwater, a senior Republican consultant, explained the need to make “big” government the enemy, not big business. According to Atwater, if people think the problem is that taxes are too high, and government interferes too much, “then we [the Republican Party] are doing our job.” But if people believe that rich people aren’t paying sufficient taxes, the Democrats are going to be in good shape.23 The southern strategy, developed in reaction to the Civil Rights Act, was very successful in moving the majority of the white electorate in the South from the

13

14

Case Study The Defense of Marriage Act and the Danger of Wedge Issues Sometimes a wedge issue may be employed to energize voters in one party as much as to attract voters from the opposing party. The Defense of Marriage Act was one such effort as well as the blowback that such an effort can bring later on. Bill Clinton was the first presidential candidate to openly solicit support from the gay community in the presidential campaign of 1992. In a campaign event in California he spoke of the moral obligation to fund AIDS research. Clinton won the enthusiastic endorsement of gays and lesbians who made significant financial contributions to his campaign. Shortly after taking office Clinton found united opposition in the Republican Party and significant opposition both within the military and the Democratic Party to his proposal to permit gays to serve openly in the military. The result was that Clinton ultimately accepted the “don’t ask, don’t tell” compromise that would permit gays and lesbians to serve as long as their sexual orientation remained secret. Gay rights advocates were frustrated with this compromise, which turned out not to be a step forward at all. After all, gays were only seeking an equal opportunity to defend the country. They were making the identical argument that African Americans made after World War II when so many sacrificed for their country despite discrimination. An equal opportunity to promote the general welfare by providing for the national defense seemed beyond challenge. As the 1996 presidential elections approached, the Republicans devised a strategy to cost Clinton votes and perhaps even the election. Clinton was on record as opposing

marriage equality, but Republicans thought that he would veto any legislation that would permit states to refuse to give “full faith and credit” to same-sex marriages even if performed in other states that recognized them as legal. Such a law would present Clinton with two unhappy choices: If he vetoed the bill, he could be portrayed as not defending the institution of marriage, and Republicans would have a major campaign issue and the evangelical wing of the GOP would be energized. However, if he signed it, he would be turning his back on the gay and lesbian community and potentially losing their votes and the votes of those who sympathized with them. President Clinton had legitimate reasons to veto the bill on constitutional grounds. First, the “full faith and credit” clause of the Constitution cannot be amended by a federal statute. Secondly, the House Judiciary Committee stated that they intended the law to reflect a “moral judgment and to express moral disapproval of homosexuality,” which would on its face appear to violate the Fourteenth Amendment’s guarantee of “equal protection.” But President Clinton was also concerned that since the bill passed both houses of Congress with large majorities, his veto would probably be overridden. In 1996 no state had enacted a law permitting same-sex marriage, so the law would have no practical effect if it passed in any event, but Clinton was also concerned that a veto of the Defense of Marriage Act could doom his reelection hopes. He decided not to take the chance. President Clinton signed the bill into law without fanfare. He was reelected and became continues

15

Case Study continued more active in support of gay rights during his second term. Most notably, he signed an executive order banning discrimination based on sexual orientation in the federal workforce. The gay community began pointing out that legalizing gay marriage did not threaten heterosexual marriage. They were only asking for equality under the Fourteenth Amendment. In the 2004 presidential campaign, gay marriage once again was used as a wedge issue, this time by incumbent George W. Bush against Senator John Kerry (D-MA). Analysts widely concluded that focusing on this issue helped Bush win Ohio, a state critical to his reelection. The Bush campaign placed ads in several moderate- to conservative-leaning states that also were won by Bush. In 1996 only about 30 percent of voters favored gay marriage. By 2012 over 50 percent favored gay marriage. President Obama declined to defend the Defense of Marriage Act against Supreme Court challenges, claiming that he believed it was unconstitutional. Republicans in the House authorized up to $3 million of taxpayer money to defend the law since Obama ordered the Department of Justice to no longer defend it. In April 2013 Democrats introduced legislation to repeal the Defense of Marriage Act, while Republicans, sensing the changed climate of opinion, accused Democrats of using the issue as a “distraction.”

In this respect, Republicans were correct. The tables had turned and now public opinion and legal arguments put Republicans on the wrong side of history. The issue reminded immigrants, women, and minority groups of the Republican Party’s unfriendliness to other minority rights issues. The issue was now driving a wedge between different factions of the Republican Party. The Supreme Court’s decision in the summer of 2013 on the Defense of Marriage Act was not at all what the authors of the bill anticipated when it was enacted. The Court struck down part of the act that denied federal benefits to same-sex couples. The decision did not guarantee a right to same-sex marriage, but it allowed people who live in states that allow same-sex marriage to receive the same federal benefits, such as Social Security and joint filing status, as heterosexual couples. Justice Anthony Kennedy’s opinion held that the Defense of Marriage Act violated the principles of federalism, which allows states to decide their own course, but he wrote that the case was not decided on grounds of federalism. He said the act must fail because it denied same-sex couples the dignity that the states intended them to have and sets them apart in a way that violates the due process and equal protection principles guaranteed under the Constitution.

Sources: Richard Socarides, “Why Bill Clinton Signed the Defense of Marriage Act,” New Yorker, March 8, 2013, http://newyorker.com/online/blogs/newsdesk/2013/03/why-clinton-signed-the-defense-of -marriage-act.html?printable=true¤tPage=all. Liz Goodwin, “Lawmakers’ ‘Moral Disapproval’ of Gay People in 1996 Could Doom DOMA Law in Supreme Court,” Yahoo! News, March 27, 2013, http://news.yahoo.com/blogs/ticket/lawmakers-moral-disapproval-gay-people-1996-could-doom -224933451--politics.html. “Kerry Running More Swing State Ads,” FoxNews.com, October 15, 2004, http://www.foxnews.com/story/2004/10/15/kerry-running-more-swing-state-ads/.

16

Public Policy

Democratic to the Republican Party, but changing demographics and attitudes over time have caused a new set of problems within the Republican Party. The Republican Party is now about 89 percent white, while the Democratic Party is about 60 percent white. The white concentration in the Republican Party is caused by a lack of African Americans and Hispanics identifying with the GOP rather than a monolithic Republican orientation among whites.24 The lesson is that wedge issues must be used by politicians with caution when trying to weaken opponents, as in the long run such an issue may strengthen an opponent. Seeking political advantage in policy debates is to be expected and is as old as politics itself. However, if public policy is only a by-product of a struggle for political advantage by mostly upper-income interests, as most models assume, then the public policy task of “promoting the general welfare” is likely to be poorly done. Political polarization makes the government’s task of producing public policies in the public interest much more difficult. The goal of public policy is to bring about meaningful improvements in society where compromise is essential. Washington politics is increasingly involved in a hyperpartisan struggle for power in which wedge issues and brinkmanship make compromise extremely difficult in zero-sum struggles. The result is all too often gridlock, with the public good the loser.

Ethics and Public Policy Ethics is about what one ought to do or what one ought not to do. As with the idea of public policy, the study of ethics involves many different definitions and competing ethical frameworks, and no single ethical framework or behavior can be applied to every case. Earlier we defined public policy as being about what governments choose to do or not to do. At the normative level, key questions include what governments ought to do or not to do. Viewed in this light, ethics is at the core of public policy. That is not to say that public policy is entirely about ethics. Many elements of policy analysis do not have an ethical dimension. Whether or not a country has a policy on consumption taxes, educational subsidies, or nuclear energy is an empirical question that usually has a factual answer. But whether it should have a policy on such matters and, if so, what the policy ought to be are fundamentally ethical questions. Almost all political and moral philosophers have maintained that the purpose of public policy necessarily involves ethical values. Many have said that public policy should be directed toward building the good society, or at least improving the current society. Others, including the framers of the Constitution, have argued that the aim should be to promote the general welfare or the public interest. Utilitarians, such as Jeremy Bentham and John Stuart Mill, have stressed the need to maximize utility or provide the greatest good for the greatest number. More recently, John Rawls maintained that the goal should be the pursuit of justice.25 However, many of

Why Study Public Policy

these approaches face the problem of agreeing on just what constitutes the “good” or “just” society or what policies best promote the general welfare.26 In public policy many ethical problems arise over the relationship between ethical behavior and the distribution of goods, or economics and the market. Some have concluded that the global economic crisis that began in 2008 largely illustrated the triumph of greed over ethical restraints that can occur when the drive for profit is left without significant regulation. Individuals, such as Pope Francis, the current pontiff of the Catholic Church, spoke out against the dangers of what critics term “unfettered capitalism” and called for moral restraint and a more equitable global distribution of wealth and income. In Pope Francis’s case, he appeared to be a biblical voice crying in the wilderness. Some would argue that the separation of ethics from economics only gained formal moral and philosophical acceptance after the development of capitalism. In pre-capitalist Europe greed was considered a “deadly” sin. Its spiritual opposite was the virtue of charity. Adam Smith, a professor of moral philosophy and father of modern capitalist theory, hoped that greed would be held in check by market competition. Today the philosophy of Ayn Rand that greed is good and only the weak preach the virtues of charity is widely supported and counts Alan Greenpan (former chairman of the Federal Reserve) and Congressman Paul Ryan (the current Republican Budget leader) as followers. Furthermore, in today’s global economy, a point has been reached at which market values have been substituted for moral values.27 Later in this text we will develop the issue of distributive justice and the idea that ethical behavior in the current system of mixed capitalism should lead to a more equitable distribution of resources. Economic inequality has reached such extremes that the Obama administration has indicated that policies aimed at not just reducing poverty but narrowing the gap between rich and poor will be a major goal of the rest of his term in office, a goal that rests on the Judeo-Christian principle, enshrined in the Declaration of Independence, that “all men are created equal,” which places responsibility on society to make sure that all citizens can meet their basic needs. Considerable empirical research also demonstrates that one common key factor in dysfunctional societies is high levels of economic inequality. In addressing the issue of inequality, society must also deal with the issue of whether unconditional welfare is compatible with other general principles of social justice. Some complain that otherwise capable people receiving the benefits of the society without contributing to them is not fair. This “free rider” argument against unconditional benefits carries significant weight, although, as discussed later in this text, most recipients of social benefits actually work full-time. We present several cases in later chapters where business and financial leaders become free riders in the market economy as they transfer large sums to themselves through imperfect markets largely unnoticed. Free-riding may well be unjust regardless of who is in a position to take advantage of it.

17

18

Public Policy

Conclusion The United States has long been an unaccountably optimistic nation, but with at least two decades of hyperpartisan politics leading to fiscal cliffs, government shutdowns, a record number of filibusters, and the least productive Congress ever, many believe the two-party system is broken. People have seen the middle class weakened and national confidence falter. Voters are recognizing that the status quo is not working and that the government could do more to solve society’s problems and meet people’s needs. Polls show the public is hungry for change to get the government back on track. Public policy is the study of government decisions and actions to deal with matters of public concern. Wise analysis is essential for deciding which policies to adopt and then implementing those policies to move the nation toward the public interest. For this reason, the study of public policy is so important, not only for scholars and politicians but also for individuals themselves, so that an informed, educated public can advocate and hold politicians accountable. A major purpose of this text is to provide students with the basic tools to understand the political economy of public policy. The good news is that the essential economic points are easy to grasp and will clarify many ongoing issues in public policy and economics throughout students’ lives. Several conceptual models are often used for policy analysis. While all are useful in highlighting certain aspects of public policy, we tend to emphasize a combination of the elite model and the scope of the conflict model as most useful. Finally, one should strive to keep policy and economic analysis as objective as possible. However, one must also be aware that the goal of public policy is to produce a “good and just society.” Therefore, normative views should be informed by ethical values and analysis, which will be clearly stated in this text.

Notes 1. In the latter half of the twentieth century, a series of crises, including the Cuban Missile Crisis, Watergate, Iran-Contra, government shutdowns, and the impeachment of President Clinton, threatened the stability of the government and its institutions. 2. “Public Policy: Models of Policy-making and Their Critique,” Public Administration, August 27, 2012, http://publicadministrationtheone.blogspot.com/2012/08/public -policy-models-of-policy-making_27.html. 3. Ibid., p. 3. 4. Kevin A. Clarke and David M. Primo, “Modernizing Political Science: A ModelBased Approach,” Perspectives on Politics 5, no. 4 (December 2007): 741–742. 5. Linda Feldman, “How Jim DeMint Did Obama a Favor,” Christian Science Monitor, July 21, 2009, http://www.csmonitor.com/USA/Politics/2009/0721/how-jim-demint-did -obama-a-favor. 6. “Notes of the Secret Debates of the Federal Convention of 1787, Taken by the Late Hon Robert Yates, Chief Justice of the State of New York, and One of the Delegates from

Why Study Public Policy that State to the Said Convention,” June 26, 1787, Yale Law School, Avalon Project, http://avalon.law.yale.edu/18th_century/yates.asp. Madison’s friend, John Jay, another delegate to the Constitutional Convention, was fond of saying, “The people who own the country ought to run it.” Adam Smith wrote a more scathing criticism of that sentiment a decade earlier: “Civil government, so far as it is instituted for the security of property, is in reality instituted for the defence of the rich against the poor, or of those who have some property against those who have none at all” (as quoted in Robert L. Heilbroner, The Essential Adam Smith [New York: W. W. Norton, 1986], p. 324). 7. Citizens United v. Federal Election Commission, 558 US 310 (2010). 8. Dana Milbank, “John Roberts, Meet Jacob Marley,” Washington Post, January 5, 2014, p. A12. 9. Matea Gold, “A Koch-Tied Labyrinth of Political Spending,” Washington Post, January 6, 2014, p. A1. 10. Jason DeParle, “Harder for Americans to Rise from Economy’s Lower Rungs,” New York Times, January 5, 2012, p. A1. 11. Bernie Sanders, “Labor Day, 2012,” September 3, 2012, http://www.sanders.senate .gov/newsroom/recent-business/labor-day-2012. 12. David Lauter, “Would Paul Ryan’s Budget Give Mitt Romney Zero Taxes?” Los Angeles Times, August 12, 2012, http://articles.latimes.com/2012/aug/12/news/la-pn-would -paul-ryans-budget-give-mitt-romney-zero-taxes-20120812. Newt Gingrich also proposed zero taxes on capital gains during the Republican primaries. 13. See Jan E. Leighley and Jonathan Nagler, Who Votes Now? Demographics, Issues, Inequality, and Turnout in the United States (Princeton, NJ: Princeton University Press, 2013). 14. E. E. Schattschneider, The Semisovereign People (New York: Holt, Rinehart and Winston, 1960), p. 129. 15. Ibid., p. 141 (emphasis in original). 16. Ibid., p. 2. 17. Ibid., pp. 2–3. 18. American Civil Liberties Union, “Voter Suppression in America,” www.aclu.org /voter-suppression-America, accessed April 16, 2013. 19. Schattshneider, The Semisovereign People, p. 33. 20. Ibid., p. 35. 21. James Boyd, “Nixon’s Southern Strategy: It’s All in the Charts,” New York Times, May 17, 1970, p. 215. ProQuest Historical Newspapers, http://www.nytimes.com/packages /html/books/Phillips-southern.pdf. 22. Ian Haney Lopez, Dog Whistle Politics (New York: Oxford University Press, 2014). Haney Lopez pointed out that the racial appeals are more subtle than old-fashioned malevolent racism. 23. Quoted in Kevin Phillips, The Politics of Rich and Poor: Wealth and the American Electorate in the Reagan Aftermath (New York: Random House, 1990), p. 32. 24. Frank Newport, “Democrats Racially Diverse; Republicans Mostly White,” Gallup Poll, February 8, 2013, http://www.gallup.com/poll/160373/democrats-racially-diverse -republicans-mostly-white.aspx. 25. John Rawls, A Theory of Justice (Cambridge, MA: Belknap, 1971). The idea of the “public interest” or the “general welfare” reaches back to the classical Greek political philosophers. Among more modern political philosophers, John Stuart Mill and, in particular, John Rawls have written extensively on the subject of the public interest regarding public policy.

19

20

Public Policy 26. See in this regard Jonathan Boston, Andrew Dradstock, and David Eng, eds., “Public Policy: Why Ethics Matters,” chap. 1, Australian National University, http://press.anu .edu.au//apps/bookworm/view/Public+Policy:+Why+ethics+matters/5251/ch01_intro.xhtml, accessed March 23, 2014. 27. Jim Wallis, Rediscovering Values: On Wall Street, Main Street, and Your Street (New York: Howard, 2010), p. 28.

2 Tools for Policy Analysis

Some knowledge of the nature of political and economic theory is a prerequisite for thoughtful public policy analysis. Therefore, the purpose of this chapter is to address the implications of the writings of John Locke, who is often regarded as the father of political liberalism, and Adam Smith, who is undoubtedly the father of modern economics. Both have had a profound influence on US political and economic philosophy. The Founding Fathers clearly based a part of the US Constitution on Locke’s Two Treatises on Government, and Adam Smith’s Wealth of Nations provided the economic model of laissez-faire capitalism that has been widely honored, although more in theory than in practice, since its publication in 1776. The major part of John Locke’s political thought was an attempt to explain and provide legitimacy to the changing political world of eighteenth-century Europe. He was concerned with what was achievable, so less of his effort was directed at envisioning a future utopia. Some of his tenets, we maintain, have become ingrained patterns of thought in the United States, contributing to our political dysfunction and constraining political progress in the twenty-first century. Likewise, Adam Smith’s economic writings are based upon the concept that the nation-state is a collection of people bound together in a shared responsibility for each other’s well-being. However, the idea of a national purpose to promote the general welfare has come under increasing strain in recent years. Political and economic theories that seek to explain the conditions of social and economic existence have normative as well as explanatory implications. Those who have prospered within a given economic system usually look for explanations 21

22

Public Policy

that support the moral legitimacy of their success. Those favored by the status quo derive an ideology from such theories to justify the continuance of the policies that brought them their good fortune. Those favored by the status quo also dominate the political and economic life of their societies. Therefore, awareness of how theories and models can be adapted to the service of policies not originally foreseen when those theories were developed is important.

An Interdisciplinary Perspective Political science and economics as disciplines, like all the social sciences, straddle the fault line between the humanities and the natural sciences. The social sciences have a split personality. They not only exist in that space but also borrow freely from both sides. Since political science, economics, sociology, and, to a lesser extent, psychology are generally moving toward greater involvement in policymaking, they are sometimes referred to as “policy sciences.” Although public policy analysis owes its birth to the development of the social sciences, the natural sciences and those that study them are contributing to public policy agendas on an increasingly regular basis. Issues such as climate change, pollution, nuclear energy, pharmaceuticals, and population, among others, require policymakers to be cognizant of and take into account the implications of empirical research. But this necessity does not mean that policymakers are always faithful to the conclusions drawn. We will discuss examples where politicians may reject empirical research that appears to undermine the interests of their supporters. Getting scholars to agree on a single, all-inclusive definition of political science is no easy task, but, for ease, we will use the classic definition of political science: a study of “who gets what, when, how in and through government.”1 Consequently, politics involves the struggle over the allocation of resources based on society’s values. Public policy is the outcome of the struggle over the allocation of resources. The study of politics is the study of influence, and the most influential people are the elites, who get most of what there is to get. Economics has been defined as “the science of how individuals and societies deal with the fact that wants are greater than the limited resources available to satisfy those wants.” 2 Scarcity forces a population to confront three core issues: (1) what to produce with limited resources, (2) how to produce the goods and services selected, and (3) to whom the goods and services are distributed.3 The given definitions of the two disciplines have a great deal in common. Both are concerned with studying human behavior in competition for scarce resources. The interdisciplinary nature of the study of public policy does not allow it to be confined to a single university department. In fact, political scientists, economists, and philosophers of science have converged on the questions raised and approaches shared regarding modeling, rational choice, and normative theory. Public policy is

Tools for Policy Analysis

the end result of a political process involving the actions of government to convert competing private objectives into public commitments. It can also include a decision not to take action.4 A democracy turns what may start out as a private conflict between constituents into a public one. Then, as the scope of the conflict is enlarged, the dispute itself may be redefined. The assumption voiced in the Declaration of Independence that individuals create government to secure their rights poses a paradox in contemporary US public policy. Men and women can advance their individual freedom only by giving up the anarchistic freedom of no government. Government policy in turn must be coercive and constrain the individual in order to promote the general welfare and secure order and predictability.

Political and Economic Anxiety: Blending Two Models Every society encourages its members to support the underlying premises on which it is built. The commitment to an operative philosophy regarding a nation’s values and institutions becomes the perspective through which citizens understand the political process and their role in it. Thus the influence of political scientists and economists is far more significant than most are aware. As John Maynard Keynes wrote: The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from intellectual influences, are usually slaves of some defunct economist. Madmen in authority who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.5

The reigning political culture in the United States, usually unconsciously, even if dogmatically, defended, is that of individualism. John Locke best expressed the vision of individualism that was to become the cornerstone upon which liberal US democracy was founded. Subsequent writers during the time of the American Revolution were keenly aware that individualism challenged the underlying assumptions and principles of monarchy and earlier classical principles. Greek and medieval philosophers, at least from Aristotle through Thomas Aquinas, thought of man as a political-social animal. They profoundly disagreed with the notion that society is merely a collection of individuals related by a contractual arrangement by which each tries to maximize his own gain. Both Greeks and Romans believed that a man reached his full potential by discharging his responsibilities as a citizen. Through life in the polis for the Greek or the civitas for the Roman, one became a functioning human being. To live outside the polis meant that one would not achieve one’s telos, or potential. Greek political philos-

23

24

Public Policy

ophy insisted that since man was a social being, the state preceded the individual and was, as an expression of civil society, a public good, not a necessary evil. Only through the state and right reason could the proper goal of happiness be achieved. Early Catholic political philosophers, such as Augustine of Hippo and Thomas Aquinas, held that God made man in His image and placed him on Earth as a steward of its bounty. For that reason the conservative, religious, Catholic tradition still remains skeptical of liberal, secular arguments for a laissez-faire economy dominated by the profit motive and the accumulation of wealth as a goal.6 Many recent popes have expressed a similar view. Most recently, Pope Francis’s treatise Evangelii Gaudium (The Joy of the Gospel) expressed a critique of “modern capitalism”: Some people continue to defend trickle-down theories, which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts, expresses a crude and naïve trust in the goodness of those wielding economic power and in the sacralized workings of the prevailing economic system. Meanwhile the excluded are still waiting.7

Francis continued by writing that “the private ownership of goods is justified by the need to protect and increase them, so that they can better serve the common good; for this reason, solidarity must be lived as the decision to restore to the poor what belongs to them.”8 This idea is in sharp contrast to John Locke’s view of the inviolability of property. Undeniable corruption and hypocrisy in the Catholic Church led to the Reformation and a rejection by Protestant theologians of any primacy of the teaching role of the Catholic Church regarding social justice. The discovery of the Western Hemisphere and the pursuit of profits in the New World brought an end to the traditional economies of Europe in which decisions were based on customs and beliefs handed down from previous generations. The feudal system of petty princes had largely already given way to national monarchies. Advances in agriculture meant that by the early 1700s, many peasants became a liability on the lord’s manor, and many were forced off the land and drifted to the cities. Many peasants, free for the first time, used skills learned on the lord’s manor to become businessmen, such as carpenters, sail makers, barrel makers, or wheelwrights, or they signed on as seamen in the new professional navy. These new arrangements and economic relationships between man and his fellow man needed a new rationale to explain and justify the changes already under way. Thomas Hobbes (1588–1679) and John Locke (1632–1704) provided a new philosophical explanation that justified the movement away from the classical worldview. The classical view, which came to be known as the “conservative” view, stressed the reciprocal rights and duties of individuals to each other in an

Tools for Policy Analysis

organic society. Thomas Hobbes was the first political philosopher to put forth a theory that emphasized rights of individuals and the state’s obligation to protect those rights. Hobbes limited natural law to the individual’s right to defend his or her own life. For Hobbes, the state of nature is a state of perpetual war of “all against all,” a state with no morality and no security. Hobbes believed that man in the state of nature is free, aggressive, and acquisitive. Freedom for Hobbes—that is, freedom from restraint that existed in the state of nature—was strictly negative. Individuals enter into a social contract to give a government absolute power to maintain order and security for the benefit of its citizens.9 Hobbes preferred a monarchy, but any absolute government would be workable. Hobbes was clear that government is an artificial creation, writing, “But as men, for the attaining of peace and conservation of themselves thereby, have made an artificial man, which we call a commonwealth, so also have they made artificial chains called civil laws.”10 Artificial law is important only for its power to coerce. Note that the state is not “natural,” nor does its existence precede man’s existence, as it did for Aristotle and Aquinas. Thomas Hobbes did express misgivings regarding the possible effect on the relationships between men in the new modernity. His concern was clear: “And whereas many men, by accident become unable to maintain themselves by their labor; they ought not to be left to the charity of private persons; but to be provided for, as far forth as the necessities of nature require, by the laws of the Commonwealth.”11 Hobbes’s challenge to natural law and the stripping of monarchs from any pretension of divine right were disconcerting to most of his contemporaries. It fell to John Locke to refine Hobbes’s philosophy and make it more pleasing to the aristocracy and the emerging capitalist class. He developed a social doctrine and a political justification that supported the self-interest of these groups. Briefly, Locke rejected the concept of innate ideas (which included natural law), insisting that the human mind is a blank slate upon which knowledge is imprinted solely through experience. This belief led him to embrace a utilitarian concept of morality based on a pleasure-pain principle. He agreed with a more nuanced view of Hobbes’s state of nature before governments came into existence: God gave the world to men in common, but since he gave it them for their benefit and the greatest conveniences of life they were capable to draw from it, it cannot be supposed he meant it should always remain common and uncultivated. He gave it to the use of the industrious and rational (and labour was to be his title to it), not to the fancy or covetousness of the quarrelsome and contentious.12

Locke agreed with Hobbes that in the state of nature men are equal but frustrated in their desire to be secure in their just claim to private property:

25

26

Public Policy If man in the state of nature be so free as has been said: if he be absolute lord of his own person and possessions; equal to the greatest and subject to nobody, why will he part with his freedom? Why will he give up this empire, and subject himself to the dominion and control of any other power? To which ’tis obvious to answer, that though in the state of nature he hath such a right, yet the enjoyment of it is very uncertain and constantly exposed to the invasion of others . . . the enjoyment of the property he has in this state is very unsafe, very insecure. This makes him willing to quit this condition which, however free, is full of fears and continual dangers; and ’tis not without reason that he seeks out and is willing to join in society with others who . . . have a mind to unite for the mutual preservation of their lives, liberties and estates, which I call by the general name, property.13

Although Locke uses religious rhetoric, scholars believe that he shared with Hobbes the primacy of the individual and the centrality of an acquisitive instinct.14 Locke wrote, “The great and chief end therefore, of men’s uniting into commonwealths, and putting themselves under government, is the preservation of their property; to which in the state of nature there are many things wanting.”15 He went so far as to say that The supreme power cannot take from any man any part of his property without his own consent. For the preservation of property being the end of government, and that for which men enter into society, it necessarily supposes and requires that people should have property . . . which was the end for which they entered into it.16

His most significant influence on US thinking was his stress on the importance of private property. This emphasis inevitably led him to accept the increasing inequality that resulted from the introduction of money as a medium of exchange. He wrote, “As degrees of Industry are apt to give Men possessions in different Proportions, so this invention of Money gave them the opportunity to continue and enlarge them.”17 Locke was committed to explaining the social, political, and economic changes that were occurring in England, and he did so in a way that seemed far less threatening to the politically powerful, who were most resistant to change. His embrace of the more acquisitive emerging business and financial interests was central in his thought. He defended the right to have title to property that was beyond the government’s reach. He disagreed with Hobbes on the question of the role of government. Hobbes envisioned an absolute government as corrective of the evils of factional strife. Locke argued for limited government because people enter into a contract with government precisely to protect their property. Locke succeeded in presenting liberalism as preferable to the growing middle- and upper-class business interests, which were constrained by the rules of mercantilism and the monarchy. Such people’s freedom was presented as freedom from government control.

Tools for Policy Analysis

Finally, the use of religious language provided a pious rationale for what became known as the Protestant Ethic. For Calvinists and other fundamentalist sects, material success was a visible reinforcement of a sign that the wealthy had found favor with God and were counted among the “chosen.” Conversely, poverty was equally a sign of the individual’s moral failing and having been rejected by the Divine. For the first time a philosophical basis had arisen for assigning moral qualities to wealth and poverty that challenged the traditional notion in Western Europe.18

Adam Smith and Classical Optimism The year 1776 was pivotal, for the Declaration of Independence and also for the publication of Adam Smith’s Wealth of Nations. Both were basic manifestations of the movement away from authoritarian monarchical forms of governmental control and toward individual liberty. The American Revolution attacked not only the political control of the North American colonies by England but also the system of economic authority that made this control inevitable. The colonists—and English entrepreneurs—had already experienced what Smith argued: state domination of the economy inhibited new opportunities for increasing production and profits. The supporters of mercantilism, with whom Smith took issue, advocated government regulation because they believed that the pursuit of one’s own selfinterest would produce chaos in society and less wealth for everyone. This led them to support a strong monarchy and a favorable balance of trade to enrich the state at the expense of competitor nations. They also supported low wages for workers to make exports cheaper and more attractive to foreign nations. Finally, it resulted in aggressive competition to acquire colonies to be exploited for the enrichment of the colonial power. Mercantilists viewed competition as a zero-sum scenario in which more for one, by necessity, meant less for others. In 1776, Smith challenged that notion. Adam Smith (1723–1790), a professor of moral philosophy, naturally saw economics as a branch of moral philosophy with a calling to improve the condition of humanity, especially the poor. Writing in the latter half of the eighteenth century, he recommended a system of natural liberty in which the individual would be free to pursue his or her own interests. By pursuing one’s self-interest, each person maximizes benefits for himself or herself, and thereby, in theory, for other individuals and for society as a whole. He began by challenging the notion that economic trade was a zero-sum exchange in which, if some were better off, others must necessarily be worse off. To illustrate, Smith maintained that if Jim wants something from Kevin that Jim

27

28

Public Policy

cannot make himself, he must produce something Kevin wants. The two agree on an exchange in which both “better their condition.” Both benefit because they agree to give up something that has less value to themselves personally than the products they receive. Thus, the total welfare has been enhanced. Smith showed that, in free competitive markets, exchange can have positive-sum results where both parties are better off than before the exchange. Smith stated in a famous passage, “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.”19 According to his theory, self-interest and competition will eliminate two kinds of waste: unrealized trades and inefficient production. Conversely, they will encourage mutually beneficial trades and efficient production. Smith had none of the illusions of later classical economists that associated wealth with morality. As a moral philosopher, he intensely disliked and distrusted what he referred to as the “unsocial passions” of greed and self-interest exhibited by merchants who would try to enlist government to give them more power: To widen the market and to narrow the competition is always the interest of the dealers. . . . The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted, till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.20

And therein lies the problem. How could a society in which merchants driven by greed and given free rein not eventually experience great inequalities and injustice as merchants raise prices to exact the greatest profit possible? Smith noted that people of the same trade seldom are in one another’s company even on social occasions, “but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”21 He ridiculed the concern of merchants for only their own self-interest: Our merchants and master-manufacturers complain much of the bad effects of high wages in raising the price, and thereby lessening the sale of their goods both at home and abroad. They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people.22

Smith, as a moral philosopher, was hostile to the greedy motives of eighteenthcentury industrialists. In a rather cruel twist of irony, he later came to be regarded as their greatest advocate. Today, in disregard of his actual philosophy, Smith is often mistakenly labeled as a conservative economist.23 How such a misunder-

Tools for Policy Analysis

standing could come about requires an explanation. Smith said that greed, selfinterest, and competition are the driving forces of production. Further, all goods have two prices: a natural price and a market price. He defined the natural price as the price that would have to be realized to cover the costs of production, with a small amount left over for a profit. He defined the market price as the price the product actually brings in the marketplace. Whenever the market price deviates from the natural price, it will be driven back in the direction of the natural price as if by an invisible hand. Every entrepreneur attempting to accumulate profits is held in check by other competitors also trying to attain profits. This competition drives down the price of goods and reduces the revenue earned by each seller. In a market unrestrained by government, the competition between entrepreneurs erases excessive profits, employers are forced to compete for the best workers, workers compete for the best jobs (usually defined in terms of wages and working conditions), and consumers compete to consume products. Consequently, producers are forced to search for the lowest-cost production methods. Finally, resources are distributed to their most highly valued use, and economic efficiency prevails. According to Smith, the owners of businesses tend to reinvest their profits, thereby consuming little more than the workers. The entrepreneurs inadvertently share the produce of all their improvements with the workers, though they intend only “the gratification of their own vain and insatiable desires.” He continued, “[Business owners] are led by an invisible hand to make nearly the same distribution of the necessaries of life which would have been made had the earth been divided into equal portions among all its inhabitants.”24 In short, Smith expected a free-market economy to result in general economic equality! Business owners would have little more to live on than their workers, as competition with other greedy merchants would force them to pour their profits back into the business to keep up. Smith conceived of the idea that order, stability, and growth are intrinsic characteristics of capitalism. In the classical view, the economy is a self-adjusting market: in other words, it will adjust itself to any departure from its long-term growth trend. The market is self-regulating in that, if anyone’s profits, prices, or wages depart from the levels set by market forces, competition will quickly force them back. Thus the market, which is the apex of economic freedom, is also an uncompromising taskmaster.25 In a competitive economy, assumed Smith, merchants are victims of their own greed. Smith opposed mercantilist government intervention as a hindrance to the unfettered workings of self-interest and competition, which is why he has become identified with conservative-minded individuals today. However, his commitment to freeing individuals from the heavy hand of monarchial rule, through a commitment to liberty as beneficial to the general public, was a very liberal position to take in his day. Smith’s classical liberalism contrasted with eighteenth-century mercantilism, which held that government should control the economy in the inter-

29

30

Public Policy

est of the state. Contemporary liberals believe that democratic governments can provide positive leadership to increase freedom and solve social problems, like poverty. By that definition, Smith would be a liberal in today’s political environment because his support of laissez-faire policies was not value-neutral but designed to help those who were less well off. His sympathies were clearly on the side of consumers rather than producers when he wrote, “Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer.”26 Smith did see a significant, although limited, role for the state. He advocated three principal uses of government: (1) the establishment and maintenance of national defense, (2) the administration of justice, and (3) the maintenance of public works and other institutions that private entrepreneurs cannot undertake profitably in a market economy. Smith’s classical economic view was optimistic. According to his theory, the economy would continue to expand through growing production based on increased investment in machinery. Machinery strengthened the division of labor and improved the worker productivity so beneficial in expanding economic output. Smith saw the market system as an enormous power for the buildup of capital, primarily in the form of machinery and equipment, which would provide jobs and result in self-sufficiency for all. The theory predicted that any slowdown in the economy would be only temporary and self-correcting. Smith was confident that the system would generate economic growth, arguing that it would extend consumption opportunities to the poorest members of society. He believed that free-market forces would bring about an agreeable, mutually acceptable solution to the problem of individual self-interest within society as long as individuals freely pursued their goals in an environment where basic rights were acknowledged by all. This aspect of Smith’s views is not usually emphasized, though he was explicit in his judgment that self-interest could be destructive if it was not moderated by justice. He condemned capitalist “rapacity,” and his disdain for opulence was captured in his statement that, “with the greater part of rich people, the chief enjoyment of riches consists in the parade of riches, which in their eyes is never so complete as when they appear to possess those decisive marks of opulence which nobody can possess but themselves.”27 Smith was critical of civil government’s lack of concern for social justice, especially toward the poor, when he wrote that “government is in reality instituted for the defense of the rich against the poor, or of those who have some property against those who have none at all,”28 and “all for ourselves, and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind.”29 Smith did not endorse the view that the unequal distribution of income was inherently just. He clearly indicated that coercion influenced the wages agreed on

Tools for Policy Analysis

between capitalists and workers. Capitalists want to pay as little as possible and possess a stronger bargaining position when dealing with workers. The legal system during Smith’s time also favored capitalists by permitting cooperation among manufacturers to hold wages down while prohibiting unions. Smith clearly broke with mercantilist views that favored paying a large working class as little as possible to provide an incentive for hard work. Smith also disagreed with the view that traits associated with individuals in different social classes were inherent. He held that “the very different genius which appears to distinguish men of different professions, when grown to maturity, is not upon many occasions so much the cause as the effect of the division of labor.”30 He openly sympathized with the working class over the manufacturing class and supported higher wages: “It is but equity, besides, that they who feed, clothe and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, clothed and lodged.”31 In regard to raising wages of workers, he wrote, “No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable.”32 Smith argued against policies that worked against the poor. For instance, he criticized the 1662 Settlement Act, which prevented workers from moving from one parish to another to take advantage of employment opportunities. Smith warned that the laissez-faire model would not work in the face of monopoly power, which he opposed in all its forms, including all laws that restrained competition. He charged that monopolists, by keeping the market continually understocked, by never fully supplying the effectual demand, sell their commodities much above the natural price, and raise their emoluments, whether they consist in wages or profit, greatly above their natural rate. The price of monopoly . . . is upon every occasion the highest which can be squeezed out of the buyers.33

Smith recognized that when entrepreneurs became monopolists (and oligopolists), they could control market forces to some degree. He realized that monopolists have an interest in understocking the market to raise the market price above the natural price. The point was not lost on socialists of the nineteenth century. Smith left the door open for government intervention to alleviate economic inequalities. A second qualification of Smith’s theory involves the notion of “effectual demand” and its relation to the pattern of income distribution. One can logically argue that in a free, competitive economy, production will mirror demand. Entrepreneurs are responsive and produce for people with money. The free market, according to the theory, is a great engine that efficiently matches production with demand. Therefore, if the society has a highly unequal distribution of income and wealth, the pattern of production will also be highly unequal.34 The market will produce a great

31

32

Public Policy

deal for the affluent and very little for the poor. Socialists soon seized on these problems with the model to justify a different theory in the nineteenth century. Although John Locke’s energy was focused on providing a rationale for providing greater freedom for the control of mostly the affluent over their political lives, Adam Smith focused on persuading the political and economic elites of the period that by allowing freedom in the marketplace, greater efficiencies would make the nation richer than under mercantilism. Economic growth would result in new tax revenues for the political rulers. Business owners would increase their financial prospects by being free to make their own decisions. Individual workers would also benefit by selling their labor for higher wages. Everyone would benefit! Though Smith warned that certain qualifications had to be met or the laissez-faire model would not produce the expected benefits, owners of capital have tended to ignore his warnings. Today any legislation or regulation to reduce monopolistic tendencies or economic inequality is denounced as “job killing” and “socialistic.”

Liberalism in the United States As noted, the general postulates put forward by John Locke came to be known, at the time, as the liberal political doctrine: individualism, freedom as the absence of restraint, the doctrine of limited government, and the belief that man is acquisitive, competitive, and asocial.35 Adam Smith’s ideas bolstered liberalism’s identification with laissez-faire capitalism by its support of acquisitive self-interest. The individual pursuit of material wealth was recognized as a social good among those seeking upward mobility. The treatises written by Hobbes, Locke, and Smith were in part efforts to understand and interpret how mercantilism was imploding under the friction of an agricultural revolution, a new industrial revolution, and competition for colonial wealth and power. The reality of new forces was quickly making traditional relationships and power structures antiquated. But every political system has a bias in favor of the status quo, and those in power will resist new arrangements that might make them worse off. The task of Locke and Smith then was to explain the changes that were under way with a rationale that would persuade the power elites that the change not only was inevitable but would actually improve everyone’s situation, including their own. The ideas of Locke and Smith traveled quickly to the New World, where the ideological veneer of British class structure was quickly swept aside by colonists aspiring to middle-class status. Thomas Paine’s withering derision of the idea of royalty in Common Sense was a sensation during the Revolutionary War. Thomas Jefferson, in the Declaration of Independence, ignoring his own ownership of slaves, noted that it was “self-evident that all men are created equal.” Jefferson paraphrased Locke’s proposition that the primary purpose of government was to pro-

Tools for Policy Analysis

tect the “lives, liberty and property” of its citizens. However, he expressed the belief more eloquently with the phrase “life, liberty and the pursuit of happiness.” James Madison, urging the ratification of the Constitution, acknowledged that the desire of men to improve their condition in a free society led to inequality in the distribution of property. He wrote: As long as the reason of man continues fallible, and he is at liberty to exercise it, different opinions will be formed. As long as the connection subsists between his reason and his self-love, his opinions and his passions will have a reciprocal influence on each other; and the former will be objects to which the latter will attach themselves. . . . From the protection of different and unequal faculties of acquiring property, the possession of different degrees and kinds of property immediately results; and from the influence of these on the sentiments and views of the respective proprietors ensues a division of the society into different interests and parties. . . . The latent causes of faction are thus sown in the nature of man; and we see them everywhere brought into different degrees of activity, according to the different circumstances of civil society.36

Regulating and breaking and controlling the violence of these factions is the main task of legislation and involves the spirit of party and faction in the normal operations of government. John Locke’s liberalism morphed into the US way of life. These premises are also at the core of the idea of US exceptionalism, which is a myth precisely because it denies its intellectual origins in British liberal writers. Such a profound belief that the United States alone is heir to these ideas is an indication of how ideologically myopic the United States is as a nation. Louis Hartz in his work The Liberal Tradition in America argued that democracy in the United States arises from a consensus in which both parties accept Locke’s classic liberalism.37 Today’s liberals and conservatives are merely wings in an overarching mental outlook. Since most people accept the liberal tradition, pressure arises for all politicians to conform to its basic tenets. Therefore, allencompassing political philosophies of the right or left have never gained a foothold in US politics. In other words, people in the United States argue with each other so strongly because they actually disagree about very little. In truth, from the American Revolution until the beginning of the twentieth century, the US system, based on Locke’s negative view of liberty as freedom from restraint and Adam Smith’s hope that a laissez-faire economy guided supply and demand for the entire society into the most productive channels, seemed to be working. Nevertheless, both theories ignored a critical aspect of liberty in a market economy. As noted earlier, in a market economy, to whom the goods are to be distributed is determined by, as Adam Smith noted, those who have money. Producers respond to demand or to those with money. They do not produce goods for those without

33

34

Public Policy

money. Goods are distributed to those having what might be labeled as “rationing coupons,” or dollar bills. If a person has sufficient rationing coupons, that person can purchase whatever he or she demands in the marketplace: food, cars, health care, education, or homes. However, if one lacks rationing coupons, the system will not recognize his or her needs, since entrepreneurs respond only to those having the means to demand (i.e., those willing and able to pay for the good in question). Thus, in the absence of government intervention, members of a pure market system would have to be willing to watch people starve to death in the streets, unless those starving could prevail upon some private charity to provide minimum support. In such a system, nothing so completely denies the liberties of an individual as the absence of money, or so degrades liberty as too few rationing coupons. The classical view of liberty also worked for a time because of the peculiar circumstances of the United States. The expansion of the original thirteen colonies westward to the Mississippi River and then into Texas and California put outward and upward mobility within the grasp of millions seeking their fortunes. Andrew Bacevich, in his work The Limits of Power: The End of American Exceptionalism, wrote about the changing political and economic environment: Expansion made the United States the “land of opportunity.” From expansion came abundance. Out of abundance came substantive freedom. Documents drafted in Philadelphia promised liberty. Making good on those promises required a political economy that facilitated the creation of wealth on an enormous scale. Writing over a century ago, the historian Frederick Jackson Turner made the essential point. “Not the Constitution, but free land and an abundance of natural resources open to a people,” he wrote, made American democracy possible. A half century later the historian David Potter discovered a similar symbiosis between affluence and liberty. “A politics of abundance,” he claimed, had created the American way of life, “a politics which smiled both on those who valued abundance as a means to safeguard freedom and those who valued freedom as an aid in securing abundance.” . . . In short, expansion fostered prosperity, which in turn created the environment within which Americans pursued their dreams of freedom even as they argued with one another about just who deserved to share in that dream.38

In the rural United States until the Great Depression, almost half of all workers were employed in agriculture or other enterprises in small towns. Life expectancy was surprisingly short and retirements tended to be nonexistent or relatively brief. In such a social and economic context, no major demand could be found for government policy interventions such as Social Security or Medicare. However, by the beginning of the twentieth century, the prosperity fostered by the expansion into new lands was over. A United States based on urban industry became the norm. Financial capital built large manufacturing centers and employed thousands of workers. For the first time mass urban unemployment, and unemployment compensation, became major issues, as did workman’s compensation result-

Tools for Policy Analysis

ing from industrial accidents.39 Although the rural poor were still largely out of sight, now the urban poor crowded into tenement districts in much closer proximity to the affluent, making the welfare of the poor a public concern. The new industrial economy also placed greater demands on the state to manage the economy to provide economic stability and to build an infrastructure to provide highways, bridges, railways, airports, public education, waste disposal, food safety, retirement security, and public health. Nonetheless, the mythology of individualism and self-reliance still survives in the public psyche and in policy debates. The nation as a whole still subscribes to Locke’s philosophy that recognized only solitary persons, while a concept of what individuals owe to others in the aggregate, the public interest, is recognized only in passing. Adherence to this old line of thinking demonstrates how ideologies that the intellectual world has judged as inadequate and flawed remain important motivators in the political world. For example, Ronald Reagan and Margaret Thatcher shared Locke’s view. In his first inaugural address Ronald Reagan asserted that government is the problem, not the solution. Margaret Thatcher famously said: “‘I am homeless, the Government must house me!’ and so they are casting their problems on society and who is society? There is no such thing! There are individual men and women and there are families and no government can do anything except through people and people look to themselves first.”40 More recently, Congressman Paul Ryan (R-WI) put forward a budget in 2011 that would have repealed President Barack Obama’s health care reform law and made major cuts in social welfare spending. Many Republicans hoped that this budget proposal would sweep Republicans to victory in 2012 and was therefore “the first presidential budget message of the new Republican Party.”41 Roger Pilon of the Cato Institute joined in the praise of the Ryan budget and lashed out at its critics. His column was titled “Is It Immoral to Cut the Budget?” He replied to the critics: The budget is a statement about the nation’s priorities—much like a family’s budget reflects what its members think important, or not. But the similarity ends there because a nation, unlike a family, is not bound by tendrils of intimacy and affection. America, especially, is not one big family. “We the People” constituted ourselves for the several reasons set forth in our Constitution’s Preamble, but chief among those—the reason we fought for our independence—was to “secure the Blessings of Liberty to ourselves and our Posterity.” Yet nowhere today is that liberty more in jeopardy than in a federal budget that reduces us all, in so many ways, to government dependents. . . . The budget battle is thus replete with moral implications far more basic than Sojourners and Catholics for Choice seem to imagine. They ask, implicitly, how “we” should spend “our” money, as though we were one big family quarreling over our collective assets. We’re not. We’re a constitutional republic, populated by discrete individuals, each with our own interests. Their question socializes us and our wherewithal. The Framers’ Constitution freed us to make our own individual choices.42

35

36

Public Policy

Roger Pilon went on to say that his views coincided with long-established Christian teachings because the Good Samaritan parable instructs us to attend to the afflicted voluntarily, not through “coercive government programs.”

Normative and Positive Analysis Hobbes, Locke, and Smith were not social scientists in the modern sense of the term, but they helped raise the curtain on modern social science analysis. They were concerned with what is referred to as normative policy analysis, analysis directed toward studying what public policy ought to be and should do to improve the general welfare. Normative analysis deals with statements involving value judgments. For example, the statement that “the cost of health care in the United States is too high” is a normative statement. This statement cannot be confirmed by referring to data. Whether the cost is too high or not is based on a given criterion. Its validity depends on one’s values and ethical views. Individuals may agree on the facts of health care costs but disagree over their ethical judgments regarding the implications of the “cost of health care.” One must be aware of the distinction between positive and normative policy analysis and not substitute the goals or methods of one for those of the other. The value of policy analysis is determined by the accurate observation of the critical variables in the external environment. Only an accurate rendering of factual relationships can indicate how best to achieve normative goals. For example, a normative view that the nation should improve the educational system does not indicate how to achieve that goal most effectively or most efficiently. If only limited funds are available to add to the educational budget, how should they be spent? Would higher salaries attract more dedicated and capable teachers? Should the school year be extended? Should the teacher-to-pupil ratio be improved by hiring more teachers? Should alternative educational programs be offered? Only a rigorous study of the costs and benefits of various alternatives can indicate a preferred solution. In a republican form of government such as that in the United States, such questions are settled by voting and through decisions made by those elected to run the institutions of government. Frequently, normative statements can be used to develop positive hypotheses. For example, most people do not feel strongly about the value of a capital gains tax cut. Their support or opposition to such a change in the tax laws depends on a prescriptive belief about a valued end state. In the presidential campaign in 2012 Mitt Romney denied his tax plan would give the wealthy a $5 trillion tax break over ten years, with most of it coming from cuts in the capital gains tax, yet he endorsed the Paul Ryan tax plan that, according to estimates, would do exactly that. Estimates also showed that upper-income groups would receive a larger per-capita benefit than other income groups. As a result, the tax cut was viewed as “unfair” and

Tools for Policy Analysis

played into the perception that Romney cared more about upper-income voters than the average wage earner. Although the social sciences emerged during a period of social reform, by the early twentieth century, they had retreated from any sort of policy advocacy. The social sciences in general adopted a value-neutral position (or a position where the values of “good” or “bad” are left out of the equation) under the guise of scientific objectivity. Scientific thought is probably one of the most prestigious activities in modern life, and those engaged in policy studies from a variety of social science disciplines were attracted to the idea that their studies would be more scientific if they eliminated values and merely focused on social behavior. The result was to confine many policy studies to empirical descriptions. Emphasis on value-free policy analysis is referred to as positive policy analysis and is concerned with understanding how the policy process works. Positive analysis strives to understand public policy as it is. It also endeavors to explain how various social and political forces could change policy by testing hypotheses. Positive policy analysis usually considers assertions of cause and effect. Analytical disagreements are usually resolved by examining the facts. For instance, the following is a positive statement: “If the US government raises interest rates, then consumers will borrow less.” The validity of this statement can be checked by measuring it against real-world observations. The results may confirm or refute the statement. The attempt to become more like the hard sciences by excluding values had several major effects. First, narrowing their focus reduced the relevance of policy analysts to policymakers, who must be concerned with preferred end states such as “reduced ethnic antagonisms.” Secondly, it reduced the importance of values in policy debates by shifting the discussion to cost-benefit analysis or the appropriate way to test a hypothesis. Finally, by glossing over the normative issues, the field of values was abandoned to special interest groups. Ignoring issues of “justice and fairness” played into the hands of business interests and social conservatives, who never stopped touting the values of preserving rights to property and the virtues of self-reliance, independence, thrift, and hard work.

The Problem of Scarcity The basic challenge confronting public policy is the fact of scarcity. Scarcity exists because resources are insufficient to satisfy all human wants. The combination of limited resources and unlimited wants requires that individuals choose the goods and services to be produced and in what quantities. Because of scarcity, governments intervene to ration the distribution of certain goods if such rationing is thought to be in the public interest. Conversely, if scarcity were not a factor, no one would have to make choices between which goods or services to produce. In addi-

37

38

Public Policy

tion, poverty and scarcity are not synonymous. If poverty were eliminated, scarcity would remain because, even though everyone might have a minimally acceptable standard of living, society still would not have adequate resources to produce everything people desired. Public policy focuses on the choices individuals and governments make. Whenever a choice is made, costs are incurred. When the unlimited wants of individuals or society press against limited resources, some wants must go unsatisfied. To achieve one goal, another usually must have to be forgone. Policy choices determine which wants will be satisfied and which will go unsatisfied. The most highly valued opportunity forfeited by a choice is known as the opportunity cost. This cost equals the value of the most desired goods or services forgone. In other words, to choose one alternative means that the opportunity to choose a different alternative is sacrificed. For example, when one decides to enroll in college rather than get a job, the opportunity cost of college includes not only the cost of tuition and other expenses but also the forgone salary. People grouped in societies face different kinds of choices. The opportunity cost of any government program is determined by the most valuable alternative use. One trade-off society faces is between national defense (guns) and social goods (butter). A fixed amount of money, say $100 billion, can be used to buy military goods or an equivalent amount of social goods (education or health care), but it cannot be used to purchase both goods simultaneously. A decision to have more of one good is also a decision to have less of other goods. Another policy tradeoff society faces is between a cleaner environment and more income. Laws requiring reduced pollution result in higher production costs, which simultaneously squeeze profits, put a downward pressure on wages, and put an upward pressure on prices. Laws to reduce pollution may give citizens a cleaner, healthier environment but at the cost of reducing corporate profits and workers’ wages while raising costs for consumers. The saying that there is no such thing as a free lunch can be applied here in that, because of scarcity, choices must be made that mean one desire or even need will be sacrificed to achieve another.43 This point may seem obvious, but many often assume that there is a free lunch. For instance, many people speak of “free public schools” or the need for “free medical care” or “free highways.” The problem is that “free” suggests no opportunities forfeited and no sacrifice, which is not the case, however, as the resources that provide education, health care, or highways could have been used to produce other goods. Parenthetically, note that for an individual in poverty, almost every economic decision has a high opportunity cost. The decision for a poor person to buy medicine may not leave enough money for a meal. Conversely, opportunity costs are much lower for a wealthy individual. Warren Buffett could decide to buy a yacht, a luxury car, and luxurious summer home at the same time because his wealth

Tools for Policy Analysis

would not force him to choose. Likewise, a nation with an economy at full employment can provide more goods and services to its citizens than a poor nation. Recognizing that everyone faces choices with trade-offs, as individuals and collectively in society, does not indicate what decisions will or should be made. But recognizing the trade-offs in choices is important because people can make astute decisions only if they clearly understand the options. The opportunity cost principle can be illustrated as is done in Figure 2.1, which summarizes the hypothetical choices in what political economists call a production possibilities curve. This production possibilities curve, or production possibilities frontier (PPF), provides a menu of output choices between any two alternatives. Think of it as a curve representing trade-offs, illustrating the hard choices that must be made when resources are scarce, or the opportunity costs that are associated with the output of any desired quantity of a good. It also illustrates the indirect effect of factors of production, defined as land, labor, and capital. The ability to alter the mix of output depends on the ease with which the factors of production can be shifted from one area to another. For example, after 9/11, military operations in Afghanistan and the decision to go to war in Iraq required the US government to shift some production from the civilian sector to defense.

Figure 2.1 Production Possibilities Curve

39

40

Public Policy

In Figure 2.1 the economy is at point A, but conservatives want to pull it to point B while liberals prefer point C, resulting in a political struggle. Both could get the quantity they want through economic growth (point D) without anyone being required to give up anything. For this reason, economic growth is strongly desired by liberals and conservatives alike, as more resources are available to satisfy society’s wants than in a contracting economy. But even at point D, both would soon find that their wants are greater than the scarce resources available, and the tug-of-war would soon begin on the new PPF. Keep in mind that points on (not inside) the PPF indicate efficient levels of production. When the economy is producing at point A, for example, one good cannot be produced in greater amounts without producing less of the other. When a policy decision moves the production from point A to point B, for instance, society produces more national defense but at the expense of producing less social welfare. The economy cannot operate outside its PPF with current resources and technology, but operating inside the PPF is also not desirable. Note that point E is a feasible output combination, but not a desirable one. Why? Because by moving to point B, for instance, the economy could produce as much social welfare as at point E, but it could also produce considerably more national defense. Or, by moving to point C, more social welfare could be produced without sacrificing the production of defense. Production at point E means that the economy’s resources are not being used efficiently. Point E is representative of a society with high unemployment. High unemployment is inefficient, because it represents forgone productivity. If the unemployed were provided jobs, they would produce goods and pay taxes, indicating a wealthier nation and a more efficient economy utilizing all its resources. As more factors of production are moved from national defense toward social welfare, ever-increasing quantities of defense must be sacrificed in order to get more social welfare, and vice versa. This phenomenon is so universal that it is referred to as the principle of increasing costs. It states that the opportunity costs of producing additional units of one good increase as more resources are used to produce that good. Or stated differently, in order to get more of one good in a given period, the production of other goods must fall by ever-increasing amounts. Production potential is not fixed for all time. As more resources or better technologies become available, production possibilities increase. As population increases, production possibilities also increase, through the increased number of potential workers. An improvement in the quality of the labor force, such as through improved education or investment in new plants and equipment, can also increase production possibilities. The outward shift of the PPF is at the heart of an expanding economy, which also can lead to a reduction of opportunity costs and a potential increase in an overall standard of living. The points along the production possibility curve or frontier indicate that many bundles of goods can be produced with the same resources. Consequently, move-

Tools for Policy Analysis

ment along the PPF demonstrates that most changes in public policy are modest or incremental shifts. Policy changes are usually, but not always, relatively small and are typically made with current conditions in mind. Hence, the best predictor of what the federal budget will be next year is the current budget. The decision to change the budget is made at the margin. Essentially, making decisions at the margin means that the focus is on the effects of small changes in particular activities. Policymakers usually consider marginal, not total, benefits and costs; as a result, they are not faced with all-or-nothing choices. An important principle for anyone studying public policy is the significance of marginal analysis, a decisionmaking process that is concerned with the additional benefits that a plan of action will provide and the additional costs that will be incurred. A policy analyst would recommend that a proposed action be taken if, and only if, the marginal benefit of the action exceeds the marginal cost. The PPF helps one see that choosing what mix of goods and services to produce is the essence of public policy considerations. A nation may face a gunsversus-butter choice in a period of high threats to national security, and environmental protection versus health care might come to the fore in peacetime. Shifts outward in the PPF represent growth; however, the PPF says nothing about the desirability of any particular combination of goods and services. We want to understand this more than just what choices have been made. We must also know why and how individuals and groups make choices and who benefits. In a diverse society that embraces different values and points of view, interests collide, so compromises are unavoidable. Policy analysts must deal with practical questions of who will gain and who will lose by the implementation of any given policy. Analysts consider whether government intervention improves on a market solution, and whether government intervention compromises values important to society in general.

Public Policy Typology One practical means of categorizing policies is based on the method of control used by policymakers. Control can be exerted through patronage, regulatory, and redistributive policies.44 Patronage policies (also known as promotional policies) include those government actions that provide incentives for individuals or corporations to undertake activities they would only reluctantly undertake without the promise of a reward. As distinct from policies that threaten punishment for noncompliance, this kind of policy motivates people to act by using “carrots.” Not surprisingly, the recipients of the rewards are often the ones who convince the government to subsidize individuals or corporations to act. These promotional techniques can be classified into three types: subsidies, contracts, and licenses.

41

42

Public Policy

The use of subsidies, or sums of money or other compensation given to individuals or businesses so that their products may remain competitive, has played a central role in the history of the United States. Alexander Hamilton wrote in his Report on Manufactures, one of the first policy-planning documents in the administration of George Washington, that subsidies for US business should be provided by “pecuniary bounties” supplied by the government. Subsidies to businesses quickly became commonplace in the United States, ranging from land grants given to farmers and railroad companies to cash subsidies for the merchant marine fleet, shipbuilders, and the airline industry. More recently, subsidies to businesses have included the auto industry bailout during the Great Recession by the Obama administration. Subsidies have also been provided to individuals through the student loan program to college students. Subsidies are typically made possible through the largesse of the US taxpayer. Since the cost is spread out among all the population, each person bears only a minuscule portion of the whole cost. Normally, little opposition can be found to these kinds of subsidies, yet the threat of their removal can arouse intense reactions from their recipients, for whom their loss could entail significant financial hardship. Contracts, or legally binding agreements that exchange money for goods and services, often including certain conditions, are also an important means of promoting particular policies. Contracts can be used to encourage corporations to adopt certain behaviors, such as equal employment opportunity, which they might otherwise find burdensome. Through licenses, governments can grant the privilege of carrying on a particular activity. Licensing allows corporations or individuals to conduct a business or engage in a profession (e.g., a licensed pilot) that, without the license, is illegal. Licensing allows the government to regulate various sectors of the population and, indirectly, the economy. Regulatory policies allow the government to exert control over the conduct of certain activities. If patronage policies involve positive motivation (the use of “carrots”), then regulatory policies involve negative forms of control (the use of “sticks”). The most obvious examples of regulation techniques include civil and criminal penalties for certain behaviors. The immediate example that comes to mind is regulating criminal behavior. Other forms of conduct are regulated, not to eliminate the conduct but to deal with the negative side effects. For example, a public utility may provide a community with the “desired good” of electricity, but it can also seek to monopolize profits. The conduct of the utility is “regulated” rather than “policed” in a criminal sense, in that the company is given an exclusive license to provide electrical energy to a given geographical area, but in return the government holds the right to regulate the quality of service and the rates charged. Other forms of regulatory policies that generate more controversy include those that govern environmental pollution, consumer protection, or employee health and safety concerns. Tax policy often may have as its primary purpose not

Tools for Policy Analysis

raising revenue but regulating a certain type of behavior by making that behavior too expensive for most individuals or companies to engage in. By taxing a substance like gasoline, tobacco, or alcohol, the government encourages a reduction in the product’s consumption. Likewise, “effluent taxes” may raise the price of goods and services that pollute, which encourages companies to reduce their pollution to reduce or avoid the tax.45 Some environmentalists are critical of the use of market mechanisms to control pollution, even though they may reduce pollution efficiently. They feel that pollution is morally wrong and a stigma should be attached to the deed. If market mechanisms alone are used to reduce pollution, said pollution is increasingly perceived with moral indifference, becoming a good to be bought or sold in the market like any other good. Environmental policy is thereby transformed from an expression of the current generation’s trusteeship over the environment for future generations to an area where economic self-interest is the guiding standard. Regulatory decisions frequently reallocate costs for those affected. Unlike patronage policies that provide only benefits, regulatory policies are usually thought of in terms of winners and losers. The losses they cause are as obvious as their benefits. Redistributive policies control people by managing the economy as a whole through deliberately shifting resources between groups. The techniques of control involve fiscal (tax) and monetary (supply of money) policies. They tend to benefit one group at the expense of other groups through the reallocation of wealth. Changing the income tax laws from 2001 to 2003, for example, significantly reduced the taxes of upper-income groups compared to other income groups in society, although some of those at the very bottom were taken off the tax rolls altogether. The result was a decline in the middle class. Since those who have power and wealth are usually reluctant to share those privileges, redistribution policies tend to be the most contentious. Many past policies aimed at redistributing wealth more equitably, even when initially successful, faced severe obstacles during economic downturns. The most obvious examples are those of the Great Society and War on Poverty programs of the 1960s. Programs with widely distributed benefits, such as Social Security, have enjoyed more success because of the larger number of people with a stake in their continuation. Fiscal techniques use tax rates and government spending to affect total or aggregate demand. Each particular approach to taxing or spending can have a different impact on the overall economy, so political entrepreneurs often propose or initiate policies with the goal of achieving specific outcomes. For example, since the passage of the initial stimulus package in 2009, President Obama has faced solid Republican opposition to any further fiscal stimulus. This opposition severely limits the president’s options for the rest of his term in office. Monetary techniques are used by the Federal Reserve Board (the Fed) to attempt to regulate economic activity by changing the rate of growth of the money supply or manipulating interest rates.46

43

44

Public Policy

Conclusion The crux of all public policy problems is to be found in the hard reality of limited (scarce) resources. The free market has proven a superb device for efficiently producing goods and services, based on individual rational self-interest, but problems of scarcity, which are universal, require intervention. Various approaches to dealing with scarcity suggest that solutions, whether left to market forces or government intervention, reflect values. A variety of possible solutions reflect the biases and choices of the individuals proposing them. People face trade-offs when they make choices. The cost of any action, whether individual or collective, is measured in terms of what must be given up. People as well as societies tend to make decisions by comparing the options’ marginal costs against their marginal benefits, and people and societies will adjust their behavior whenever incentives change. One needs to keep in mind that although markets are a good way to organize many of society’s activities, several areas can be identified where markets fail or produce outcomes unacceptable to society’s collective values. In those cases, government can improve on market outcomes. Government efforts to relieve market imperfections (failures) by public policy may also be flawed, however. The question is whether government, which was created to promote the general welfare, will provide solutions that will be less imperfect than those produced by market mechanisms. Government may be the only actor that can improve market efficiency or alter economic and social costs, risks, and income distribution in a positive way. Some argue that these problems can be solved, but that most solutions mean someone must accept significant economic losses. No one willingly accepts a loss. So people struggle to veto any solution that would have a negative impact on them, or they work, at minimum, to have the cost transferred to someone else or another group. The effect is to produce “veto groups” waiting to aggressively fight any proposed public policy that would result in a loss to their position. Often, the political struggle that results causes a larger cost than gain for those attempting to effect the change. The result is often political and economic paralysis. However, not all public policy solutions must be zero-sum solutions, where one group’s net gains must be offset by another group’s losses. There are non-zerosum solutions, which usually involve increasing economic growth so more resources are available for everyone. However, even these solutions require the intervention of government in the form of industrial policies, and many people see this intervention as just another effort to have government provide a remedy no more promising than any the market itself can provide. The major economic competitors of the United States, including both Japan and Germany, have incorporated industrial policy as a key component of their public policies, but it is a controversial issue in the United States.

Tools for Policy Analysis

Notes 1. Harold G. Lasswell, Politics: Who Gets What, When, How (Cleveland, OH: Meridian, 1935), chap. 1. 2. Roger A. Arnold, Macroeconomics (St. Paul, MN: West, 1996), pp. 6, 11. 3. Bradley R. Schiller, The Macroeconomy Today, 11th ed. (New York: McGraw-Hill, 2008), p. 2. 4. “Defining Public Policy,” ProfWork Home Page, http://profwork.org/pp/study/define .html, accessed March 23, 2014. 5. John Maynard Keynes, The General Theory of Employment, Interest, and Money (New York: Harcourt Brace Jovanovich, 1966; originally published in 1936), p. 383. 6. See, in particular, Paul L. Nevins, The Politics of Selfishness: How John Locke’s Legacy Is Paralyzing America (Santa Barbara, CA: Praeger, 2010), p. 16. This work is an excellent analysis of the implications of Locke’s thought for US political culture. Also note what appears to be a reemphasis on the ethical concerns regarding capitalism by the latest Roman pontiff, Pope Francis. Also see Jorge Mario Bergoglio and Rabbi Abraham Skorka, On Heaven and Earth, trans. Alejandro Bermudez and Howard Goodman (New York: Image, 2013). 7. Pope Francis, Evangelii Gaudium, Vatican, November 26, 2013, http://www.vatican .va/holy_father/francesco/apost_exhortations/documents/papa-francesco_esortazione -ap_20131124_evangelii-gaudium_en.html. 8. Ibid. (emphasis added). 9. William Ebenstein and Alan Ebenstein, Great Political Thinkers: Plato to the Present, 6th ed. (New York: Harcourt, 2000), p. 361. 10. Ibid., p. 372. 11. Thomas Hobbes, Leviathan (Meridian ed.) (New York: World, 1963), p. 304. 12. John Locke, Second Treatise of Government, sec. 34, http://www.gutenberg.org /files/7370/7370-h/7370-htm, accessed March 23, 2014. Also see Ebenstein and Ebenstein, Great Political Thinkers, p. 395. 13. Locke, Second Treatise of Government, sec. 123. Also see Ebenstein and Ebenstein, Great Political Thinkers, p. 399. 14. Nevins, The Politics of Selfishness, p. 32. 15. Locke, Second Treatise of Government, sec. 124; Ebenstein and Ebenstein, Great Political Thinkers, p. 399. 16. Locke, Second Treatise of Government, sec. 138. John Locke’s writings reflected his political commitments. Although he held that governments must respect property rights, he did not recognize the same requirement of consent with regard to the confiscation of properties of the Catholic Church and its religious orders by the Tudor monarchs. Much of the church property was given to the landed gentry. 17. Locke, Second Treatise of Government, sec. 48. 18. Many scriptural references critical of greed can be cited. Most notably, Christ’s Sermon on the Mount when he said, “Blessed are the Poor, for yours is the kingdom of God” (Luke 6:20). And further, “woe to you who are rich, for you have already received your comfort,” and “woe to you who are well fed, for you will go hungry” (Luke 6:24–25). The Protestant Ethic effectively turned virtue and vice in this regard on its head. 19. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, ed. Edwin Cannan (New York: G. P. Putnam’s Sons, 1877; originally published in 1776), p. 27. 20. As quoted in Robert L. Heilbroner, The Essential Adam Smith (New York: W. W. Norton, 1986), p. 322.

45

46

Public Policy 21. Adam Smith, The Wealth of Nations, 6th ed. (London: Metheun, 1950), vol. 1, p. 144. 22. Ibid., p. 110. 23. Smith was against the government meddling with the market mechanism. As Robert Heilbroner (The Worldly Philosophers, 3rd rev. ed. [New York: Simon and Schuster, 1967]) has pointed out: “Smith never faced the problem . . . of whether the government is weakening or strengthening the market mechanism when it steps in with welfare legislation. . . . There was virtually no welfare legislation in Smith’s day—the government was the unabashed ally of the governing classes. . . . The question of whether the working class should have a voice in the direction of economic affairs simply did not enter any respectable person’s mind” (pp. 63–64). 24. Adam Smith, The Theory of Moral Sentiments, ed. D. D. Raphael and A. L. Macfie (Oxford: Clarendon, 1976; originally published in 1759), p. 386 (emphasis added). For excellent summaries of Smith’s contributions, see Robert Heilbroner and Lester Thurow, Economics Explained: Everything You Need to Know About How the Economy Works and Where It’s Going (New York: Simon and Schuster, 1998), pp. 26–44; Robert L. Heilbroner, The Worldly Philosophers, 6th ed. (New York: Simon and Schuster, 1992), pp. 42–75; and Daniel R. Fusfeld, The Age of the Economist, 9th ed. (New York: Addison-Wesley, 2002), pp. 23–36. 25. Smith’s writings in An Inquiry into the Nature and the Causes of the Wealth of Nations were in part an effort to refute the contention of mercantilists that the economy should be regulated by the monarchy to provide support for merchants, which would ultimately increase the nation’s power. The king was free to intervene in the most arbitrary and capricious ways as an exercise of “sovereign right.” Smith wrote: “England, however, has never been blessed with a very parsimonious government, so parsimony has at no time been the characteristic virtue of its inhabitants. It is the highest impertinence and presumption, therefore, in kings and ministers, to pretend to watch over the economy of private people, and to restrain their expence, either by sumptuary laws, or by prohibiting the importation of foreign luxuries. They are themselves always, and without exception, the greatest spendthrifts in the society. Let them look well after their own expence, and they may safely trust private people with theirs. If their own extravagance does not ruin the state, that of their subjects never will” (pp. 227–228). 26. Heilbroner, The Essential Adam Smith, p. 324. 27. Ibid., p. 322. 28. Adam Smith, Wealth of Nations (New York: Random House, 1937), p. 674. 29. Ibid., p. 389. 30. Ibid., pp. 15–16. 31. Ibid., p. 9. 32. Ibid. 33. As quoted in Fusfeld, The Age of the Economist, pp. 32–33. 34. Ibid., p. 33. 35. Nevins, The Politics of Selfishness, p. 39. 36. James Madison, The Federalist #10, Library of Congress, http://thomas.loc.gov /home/histdox/fed_10html. 37. Louis Hartz, The Liberal Tradition in America (New York: Harcourt Brace, 1955), p. 9. This work has strongly influenced later scholarship on US national identity and the idea of “US exceptionalism.”

Tools for Policy Analysis 38. Andrew Bacevich, The Limits of Power: The End of American Exceptionalism (New York: Henry Holt, 2008), pp. 15–16. 39. John Kenneth Galbraith, The Good Society: The Human Agenda (New York: Houghton Mifflin, 1996), pp. 10–11. 40. Douglas Keay, Margaret Thatcher (interview September 23, 1987), in “Woman’s Own,” October 31, 1987, pp. 8–10. Also available at http://www.margaretthatcher.org /speeches/displaydocument.asp?docid=106689. 41. Daniel Henninger, “A Ronald Reagan Budget: Paul Ryan’s Budget Offers Much More than Deficit-Reduction Brimstone,” Wall Street Journal, April 7, 2011, http://online .wsj.com/article/SB10001424052748704101604576246900648182340.html?mod=WSJ _Opinion_LEADTop. Also quoted in Thomas Byrne Edsall, The Age of Austerity: How Scarcity Will Remake American Politics (New York: Doubleday, 2012), p. 165. 42. Roger Pilon, “Is It Immoral to Cut the Budget?” Wall Street Journal, April 7, 2011, http://online.wsj.com/article/SB10001424052748704101604576246441115301636.html. 43. The statement is accurate when referring to the market in the long run. However, it is not necessarily true in the polity in the short run. Many public policies result in taxes paid by some people being redistributed to provide benefits for others. For example, middleincome taxpayers may provide funds for food stamps for the poor. Those providing the largesse for others usually want spending reductions, while the recipients of the benefit favor more resources. 44. See Theodore Lowi, “American Business, Public Policy, Case Studies, and Political Theory,” World Politics 16 (July 1964): 677–715. See also Theodore Lowi, The End of Liberalism: The Second Republic of the United States (New York: W. W. Norton, 1979). 45. Taxation for the purpose of discouraging certain conduct or eliminating certain activities is often opposed on the grounds that the affluent can buy the right to behave in a manner that is prohibitive to the less wealthy. The charge is correct in that the affluent may be less deterred by the higher price of gasoline, alcohol, tobacco, or other products that cause pollution than will the poor, who may be eliminated from the market by the repressive feature of the tax. However, public health should improve and the environment should become cleaner. The repressive nature of the tax may also be beside the point if the extra amount that the affluent pay exceeds the value we place on the harm caused by alcohol or tobacco consumption, or if a cleaner environment caused by less consumption of gas or other products that cause pollution results in the transference of real income to the population as a whole. 46. The Federal Reserve System’s control over the money supply is the key aspect of US monetary policy. The Fed has three primary levers of power. The first concerns the reserve requirement. The Fed requires private banks to keep some fraction of their deposits in reserve. The reserves are held in the form of cash or as credits at its regional Federal Reserve Bank. By changing the reserve requirement, the Fed can directly affect the ability of the banking system to lend money. The second lever concerns the Fed’s discount rate; the Fed changes the cost of money for banks and the incentive and ability to borrow. The third and most important lever involves the Fed’s open market operations, which directly alter the reserves of the banking system. When the Fed buys bonds, it increases the deposits (reserves) available in the banking system. If the Fed sells bonds, it reduces the reserves and restricts the amount of money available for lending.

47

3 Polarized Politics: The Policy Context

From the beginning of the American Revolution, waged against a monarch that perceived few limits to his power, until the Great Depression beginning in 1929, most people in the United States accepted the notion “that government is best which governs least.”1 All the basic tenets of modern conservatism flowed from the opposition to government’s power. For instance, a widely held belief that an unregulated market economy tended toward full employment of men and capital could be found. Therefore, according to such a belief, any economic slowdown should only be temporary since the market would soon self-correct without any government intervention. The government should only be involved as a last resort in resolving political or economic controversies, and since the status quo has a claim on legitimacy, change should come slowly when it is necessary. As a logical consequence, then, government should be kept small to avoid the temptation for it to meddle unnecessarily in political and economic issues. Further, government should not interfere in the personal lives of its citizens. Governments tend to be wasteful, and the private sector (business model) is invariably more efficient so it should be preferred over government solutions. On the other hand, one of the highest duties of government is to protect private property. To ensure a small and efficient government, taxes should be kept to a minimum. Modern conservatives generally believe that government spending should not exceed government receipts. A balanced budget forces the government to live within its means. As we noted in Chapter 1, political parties organize the political world into choices for voters and provide voters with a sense of affiliation with a perspective on politics and an evaluation of policy issues. Different policy perspectives are necessary 49

50

Public Policy

for political parties to provide voters with choices and enable them to hold officials accountable for their policy positions during elections. Our unique political institutions, however, require a broad consensus regarding goals in order for political parties to work constructively to “promote the general welfare,” and the average observer is keenly aware of the increasing inability of the government to act effectively. However, by the late 1800s, many classical liberals adopted a pragmatic view and became convinced that democratic government could increase individual freedoms through expanding voting rights, abolishing slavery, and promoting education and public health. These individuals became modern-day liberals while the classical liberals who were primarily anxious over a powerful government became the modern-day conservatives. How these ideological changes took place from the early days of the Republic and the significance of those changes today are the subject of this chapter.

The Founders: Masters of the Art of Compromise The impact of the Revolutionary War, the experience with the Articles of Confederation, and the negotiations at the Constitutional Convention were determining influences on the institutions of government that were created. The institutions have, in turn, provided the boundaries within which the never-ending political struggles to control the executive, legislative, and judicial branches of government take place. Much of the polarization that has been building is a consequence of the Republican Party’s bold desire to reverse decades of economic and social policy beginning with the New Deal. As noted above, the Founding Fathers were particularly concerned about protecting the citizenry from the arbitrariness of dictatorial authority, with which they were all too familiar from dealings with the British monarchy. They were determined to prevent such a concentration of power in the executive branch of government. Their concern became the Constitution’s most distinguishing feature: institutional fragmentation and decentralized sources of power. One should recall that, although institutional fragmentation is a major reason for frustration over the seeming inability of government to deal decisively and effectively with issues of public policy, it was intentionally designed as part of the Constitution. The Constitution was purposely constructed to make governing difficult— not to simplify political choices but to complicate them. Rather than entrusting political leaders with sufficient control, it hinders them with insufficient authority. The framers of the Constitution crafted the institutions of government to slow the policy process, through the system of checks and balances, in the belief that such a distribution of power would help reason to triumph over passion and keep one branch from monopolizing the process and pushing through self-serving or unpopular policy by sheer force.

Polarized Politics

The members of the Constitutional Convention agreed that the Continental Congress had erred in the direction of creating a central government that was too weak and powerless when it wrote the Articles of Confederation. Individual liberty had not been threatened, but the national government was totally dependent on the states to validate and ratify all of its actions and could not control the competitive impulses of the states that worked against the common national interest. European powers recognized this division as an opportunity and sought to exploit the competition between states regarding overlapping claims on western territories and trade and tariff policies that weakened the unity of the new nation. The failure of government under the Articles of Confederation to meet these and other challenges led to the Constitutional Convention of 1787. The delegates agreed on the need to develop a new form of national government that could avoid the problems of “excessive democracy” of the state and national government experienced under the Articles, and while disagreements occurred over many features of the proposed government, no disagreement arose over the principle of separation of powers—the notion that the powers of government must be divided into legislative, judicial, and executive branches. The framers believed that this separation of powers and federalism would prevent a national government abusive of its power. James Madison also expressed concern that a legislature could not be counted on to act for the common good when competing issues were presented: No man is allowed to be a judge in his own cause because his interest would certainly bias his judgment, and, not improbably, corrupt his integrity. . . . Yet what are many of the most important acts of legislature but so many judicial determinations, not indeed concerning the rights of single persons, but concerning the rights of large bodies of citizens? . . . It is in vain to say that enlightened statesmen will be able to adjust these clashing interests and render them all subservient to the public good. Enlightened statesmen will not always be at the helm.2

Ultimately, a ruling structure was designed to prevent any power from becoming the undisputed dominant force. Thus, under a system of checks and balances, governmental power was divided among the three branches, and each branch was given authority to prevent encroachments on its power by the others. As Madison said in his famous maxim, “ambition must be made to counter ambition.”3 The US government has expanded in ways that would have astounded the Founding Fathers. However, the survival of the key features of their design—decentralization, separation of powers, checks and balances, and limited government— affirms the permanence of their effort. This fragmentation defies the effort to bring more orderly and empirical approaches to the policy process and provides many critical junctures where opponents have a decided advantage in derailing unwanted policy solutions (see Figure 3.1).

51

52

Public Policy

Figure 3.1 The Fragmentation of Power in the US Government

Constitution Judicial supremacy Supreme Court Limited government

Individual rights and liberties

Governmental powers Federalism

National government

State governments

Separation of powers Checks and balances Congress

House of Representatives

Courts

President

Senate

Federalism and Fragmentation One of the greatest obstacles faced by the framers of the Constitution was the knowledge that, regardless of the design of the document, they had to obtain ratification from the state legislatures for it to go into effect. Consequently, they understood that the states would have to be guaranteed significant autonomy regardless of other governing arrangements. The difficulty, then, was to strengthen the national government

Polarized Politics

so that it could carry out its will in certain necessary areas while reassuring the states that they would retain all their essential powers. The delegates crafted a system of federalism, in which power is divided between a national authority and political subunits, because it was the most strongly centralized system they could hope that the states would accept. As in other areas of constitutional debate, the framers could not agree on a precise relationship between the national and state governments. The result was another compromise between national government and state power. A major concern of the delegates in Philadelphia was how to design a national government with enough power to protect private property and provide economic stability. The delegates wanted to place the protection of property and commerce in the hands of the national government to protect them from state legislatures. They also specifically forbade the states to tax imports or exports, to coin money, to enter into treaties, or to impair obligations and contracts. States have not retreated from the competition for power, however. Many federal policies rely on states to implement the programs. States have power through the dual banking system and the many regulations imposed by them. They have become more rather than less active in passing environmental legislation, consumer protection, and occupational health and safety laws. States also often compete with each other to attract business and investment to their jurisdictions, by offering tax exemptions, suspending regulations, and providing loan guarantees and even direct tax subsidies.

The Legislative Branch The issue of representation in the national legislature threatened to derail the entire constitutional initiative. Small states balked at the proposal known as the Virginia Plan, which provided for representation in the legislature based on the population of each state. A counterproposal, known as the New Jersey Plan, which would provide for equal representation in the new legislature regardless of population, was put forward by the less populous states, fearing that the more populous states would dominate under the Virginia Plan. The Constitutional Convention avoided disaster when the delegates accepted the Connecticut Compromise, which provided for a bicameral legislature with representation in the House of Representatives apportioned according to population and representation in the Senate equally, regardless of population. In 1787 the disparity in voting power between the largest states like Pennsylvania and Virginia was about eleven to one. Today the disparity between the largest state by population (California) and the smallest state (Wyoming) is seventy-three to one, yet each state has just two senators.4 If such a disparity had existed in 1787, the Connecticut Compromise would not have been acceptable to the large states. The overrepresentation of small states has grown in importance in ways the delegates in Philadelphia could scarcely have anticipated.

53

54

Case Study The US Senate: Undemocratic and Becoming More So The US Senate is one of the least representative legislative bodies in the Western world and will become more so in the next century. A basic principle of democratic representation is that each person’s vote should be equal. The framers designed the Senate as an antimajoritarian institution to protect the interests of small states. In 1787 Virginia, the most populous state, had almost ten times the population of Delaware. Since the Senate represents states rather than the size of the constituency, both would have the same number of senators. Since that small beginning, the nation has expanded and moved from a rural to an urban society in ways the founders could not have imagined—making the ten-toone ratio seem quaint. Today California, the most populous state, has seventy-three times the population of Wyoming for a ratio of seventy-three to one. The result is that a smaller minority of the electorate elects an everlarger majority of the senators. Today about half of the US population lives in just nine states. Right now just 10 percent of the population elects 40 percent of the Senate. Thus, senators representing about 10 percent of the population can block reforms through the filibuster. And the problem will get worse because most of the population growth in the foreseeable future is projected to be concentrated in a few already populous states (especially California). California with 38 million people is represented by two senators, while the 38 million people in the 22 smallest states are represented by 44 senators. A demographic gap is forming as well with larger states becoming more urban and liberal and smaller states remaining rural and conservative, increasing the importance of the power differential. The Senate exagger-

ates the power of rural, mostly white, conservatives. Liberals, especially ethnic minorities, including African Americans, Latinos, and Asian Americans are more likely to live in large urban states like California, Illinois, New York, and Florida. The small-state advantage in the Senate carries over to the Electoral College, where each state is allocated votes for each of its House members based on population but also receives a vote for each of its senators. Many of the smallest states in terms of population are reliably Republican in presidential elections. For example, of the nation’s five smallest states, only Vermont leans Democratic. Alaska, North and South Dakota, and Wyoming have voted Republican in every presidential election since 1968. In The Federalist #22, Alexander Hamilton criticized the equal representation of the states under the Articles of Confederation as one of the worst defects of that system. Allotting representation on the basis of statehood rather than population, he wrote, “contradicts the fundamental maxim of republican government, which requires that the sense of the majority should prevail.” In the 1960s, the Supreme Court struck down malapportioned state legislatures as unconstitutional, arguing that they violated the principle of one person, one vote. In 1963, the Supreme Court rejected state arguments that they could mimic the structure of the state legislature and have one house not based on population. The Court declared in Gray v. Sanders (372 US 368 [1963]) that the “conception of political equality from the Declaration of Independence to Lincoln’s Gettysburg Address to the 15th, 17th, and 19th Amendments can mean only one thing—one person, one vote.”

Sources: Gray v. Sanders 372 US 368 (1963). Alexander Hamilton, The Federalist #22. Michael Lind, “75 Stars,” Mother Jones, January–February 1998, pp. 44–49. Adam Liptak, “Small States Find Outsize Clout Growing in Senate,” New York Times, March 11, 2013, pp. A1, A12, A13.

Polarized Politics

It influences the Senate’s consideration of policy issues ranging from health care and immigration to education, gun control, and environmental protection.

The Filibuster: A Tool of Obstruction The filibuster adds an additional undemocratic procedure to an already undemocratic institution. Senate rules of procedure, including the filibuster rules, are not a matter of the Constitution but decided by each Congress, requiring a majority vote. The filibuster was unknown for the first fifty years of the national government, when the original Senate ended debate by a simple majority vote. The filibuster is a privilege extended to the minority by the majority to permit the minority who care deeply about an issue in extraordinary circumstances to prevent a vote on proposed legislation or presidential nominations by engaging in a filibuster. Traditionally, a senator could prevent a vote as long as he “held the floor” and kept talking. More recently, Senate rules were amended to permit a senator to effect a filibuster by indicating he was filibustering without having to hold the floor. The only way to end a filibuster is by a vote to “close the debate,” or a cloture vote, which requires a two-thirds vote (60 of a possible 100). The increase in the number of filibusters in recent years is unprecedented. Lyndon B. Johnson faced one filibuster during his time as Senate majority leader (1955–1961). By contrast, Senator Harry Reid (D-NV) has faced more than 430 Republican filibusters, or requirement of a cloture vote. If the requirement of cloture votes is limited to the use of the filibuster to block the confirmation of presidential nominations, it has been used ninety-two times since the beginning of the Dwight Eisenhower administration in 1953. Of those ninety-two blocked nominations, seventy-two (78 percent) came during the the Barack Obama administration. The Senate traditionally served as the deliberative upper chamber that invited the discussion of ideas regarding policy across party lines. Unfortunately, the filibuster, as used in the last several years, has transformed the Senate into a dysfunctional body unable to engage in constructive discussion on almost any issue.5 The media frequently discusses how Congress is broken, but the Republican Party clearly announced their strategy of obstructionism. Senator Trent Lott (R-MS) was the Senate minority whip for the Republicans in 2007 when Democrats took control of the Senate. He explained the Republican strategy by stating, “The strategy of being obstructionist can work or fail . . . so far it’s working for us.”6 Recent Senate filibuster practices have essentially led to the requirement for supermajorities to pass legislation. For example, suppose a Senate member assembles fifty-one votes in support of her bill. Her opponent objects and threatens a filibuster. Shutting down a filibuster—cloture—requires sixty Senate votes. Thus, the opponent wins despite the earlier majority support for the bill. Though democracies are based on majority rule, decisions can be turned on their head by a minority. The

55

56

Public Policy

median position is no longer fifty-one votes; rather it is forty-one votes. In the last several years, the Democratic majority has tended to avoid filibusters by dropping a measure when an objection is raised, both because of the floor time consumed and because moving to a cloture vote (sixty votes) would be a futile effort. That the Senate vote that would have increased background checks for gun purchases—supported by 86 percent of US voters and by 54 senators representing at least 60 percent of the population—could not receive an up or down vote speaks to the ability of a minority to obstruct a majority. The bill “passed” the Senate, but the support was insufficient to break the threat of a filibuster.7 James Fallows wrote: Since the Democrats regained majority control of the Senate six years ago, the Republicans under Mitch McConnell have applied filibuster threats (under a variety of names) at a frequency not seen before in American history. Filibusters used to be exceptional. Now they are used as blocking tactics for nearly any significant legislation or nomination. The goal of this strategy, which maximizes minority blocking power in a way not foreseen in the Constitution, has been to make the 60-vote requirement seem routine. As part of the “making it routine” strategy, the minority keeps repeating that it takes 60 votes to “pass” a bill—and this Orwellian language redefinition comes one step closer to fulfillment each time the press presents 60 votes as the norm for passing a law.8

Senator Pat Toomey (R-PA) after the failed Senate effort said, “There were some on my side who did not want to be seen helping the president do something he wanted to get done, just because the president wanted to do it.”9 The problem is reflected in a few statistics. From about 1920 to 1970, filibusters averaged roughly one a year, while in 2005–2006, an average of thirty-four cloture motions were made per year to end filibusters.10 In 2009, double the number of filibusters occurred than in the twenty-year period from 1950–1969, when they were used repeatedly to block civil rights legislation.11 An average of 124 cloture votes took place in each of the four years of Obama’s first term.12 In the session of Congress concluding in January 2013, a record low of just 3 percent of Senate bills were passed.13 A first-time ever event occurred during this period when the ranking minority member, Senator Mitch McConnell (R-KY), made a motion to raise the debt ceiling that would require the president to decide where to make the necessary budget cuts. Senate majority leader Harry Reid (D-NV) called for a vote on the proposed measure, and McConnell objected, effectively filibustering his own motion.14 Placing a de facto sixty-vote requirement for all Senate business is clearly not what the Founders intended. They experienced the paralysis that resulted from the supermajority requirements under the Articles of Confederation. In fact, they explicitly rejected supermajority requirements with only a few specific exceptions. James

Polarized Politics

Madison addressed why a proposal to require “more than a majority” for legislative decisions should be rejected in The Federalist #58: “In all cases where justice or the general good might require new laws to be passed, or active measures to be pursued, the fundamental principle of free government would be reversed. It would be no longer the majority that would rule: the power would be transferred to the minority.”15 The Founders in fact did write into the Constitution specific supermajority requirements in a very limited number of cases concerning overriding vetoes, consenting to treaties, constitutional amendments, expulsion of members, and impeachments. Alexander Hamilton appears to have anticipated the Republican Party’s current tactics by also opposing the notion of supermajorities in The Federalist #22, stating: But its real operation is to embarrass the administration, to destroy the energy of the government, and to substitute the pleasure, caprice, or artifices of an insignificant, turbulent, or corrupt junto to the regular deliberations and decisions of a respectable majority. . . . If a pertinacious minority can control the opinion of a majority, respecting the best mode of conducting it [the public interest], the majority, in order that something may be done, must conform to the views of the minority; and thus the sense of the smaller number will overrule that of the greater, and give a tone to the national proceedings. Hence, tedious delays; continual negotiation and intrigue; contemptible compromises of the public good. . . . It is often, by the impracticability of obtaining the concurrence of the necessary number of votes, kept in a state of inaction. Its situation must always savor of weakness, sometimes border upon anarchy.16

A state of inaction indicates the successful implementation of the strategy of obstructionism. The Washington Post listed some major bills that had majority support and would have passed the Senate during Obama’s first term if it did not have the filibuster. The listing gives an indication of the scope of proposed legislation, including the following:17 • DREAM Act • Employee Free Choice Act • Paycheck Fairness Act • American Jobs Act • Shared Sacrifice Resolution • Withholding Tax Relief Act of 2011 • Permanent Middle-Class Bush Tax Cut Extension • Rescinding the Upper-Income Bush Tax Cuts • Emergency Senior Citizen Relief Act • Creating American Jobs and Ending Offshoring Act • Repeal Big Oil Tax Subsidies Act

57

58

Case Study The Gerrymander as Artful Disenfranchisement The elections of 2012 exposed an undemocratic aspect of drawing congressional districts. One would normally expect to find in democratic congressional elections that the party that won the most votes would win more seats. However, in the 2012 election, Democrats received 1.4 million more votes than Republicans, but Republicans took control of the House by a 234 to 201 margin. Democrats won the congressional vote nationally, 48.7 percent to 47.6 percent, but the Republicans won 54 percent of the House seats to 46 percent for the Democrats. Through creative drawing of district boundaries, or gerrymandering, those behind the scenes can place sizable groups of voters on the losing side of almost every election. Gerrymandering comes in two basic forms: “packing” and “cracking.” Packing is the process of jamming voters likely to favor the opponent into a few districts where they will win lopsided victories. Cracking involves spreading the opposition into many districts where their votes will be insufficient to win relatively close elections. The Republican State Leadership Committee dedicated to influence redistricting through a plan called “Redmap” issued a progress report on its $30 million strategy to tilt the playing field in the Republican Party’s favor. The rationale was straightforward: take over state legislatures in those states that would have the greatest impact on determining how state and congressional districts would be drawn before the decennial census report. Drawing “new district lines in states with the most redistricting activity presented the opportunity to solidify conservative policymaking at the state level and maintain a Republican stronghold in the U.S. House of Representa-

tives for the next decade.” The report boasted of the plan’s success. Sam Wang, a neuroscientist, used statistical tools to detect gerrymandering by starting with an unsophisticated principle that the party that wins more than half the votes should get at least half the seats. In 2012, five states failed to even make that principle including Arizona, Michigan, North Carolina, Pennsylvania, and Wisconsin. He next calculated how each state’s congressional delegation would be constituted if districts were not drawn to protect any political party or incumbent. He did this by randomly picking combinations of districts from around the nation that added up to the same statewide total. On a computer, it is possible to create thousands of such delegations not constrained by geography. Then one can test what would happen if a particular state had districts typical of the rest of the country. In North Carolina, where the two-party vote for House of Representatives was 51 percent Democratic and 49 percent Republican, the average simulated delegation was seven Democrats and six Republicans. The actual outcome in North Carolina was four Democrats and nine Republicans—a split that occurred in less than 1 percent of his simulations. If districts were drawn without partisan considerations, the lopsided discrepancy would almost never occur. In Pennsylvania, 100,000 more votes were cast for Democrats over Republicans for Congress, but Republicans won twelve of eighteen seats in the House. Sam Wang’s analysis also found that the conventional wisdom that claims partisan redistricting is symmetrical between the political parties is incorrect. By his seat-discrepancy continues

59

Case Study continued criterion, ten states are at variance with his standard: the five mentioned above, plus Virginia, Ohio, Florida, Illinois, and Texas. Arizona was redistricted by an independent commission, Texas was a combination of Republican and federal court decisions, and Illinois was controlled by Democrats. Republicans redistricted the other seven maps. Wang found that although both Democrats and Republicans may use redistricting to their advantage, one side gerrymanders districts more often. He expressed surprise to find that California was not on the out-of-whack list. In California, 62 percent of the two-party vote went to Democrats and the average mock delegation of thirty-eight Democrats and fifteen Republicans exactly matched the newly elected delegation. In a noteworthy turn of events, California voters took redistricting out of the state legislators’ hands by creating the California Citizens Redistricting Commission. In 2012 the effect of gerrymandering was greater than any other factor in the electoral outcome. Democrats would have had to win by 7 percentage points to take control of the House. Replacing the eight partisan gerrymandered districts with Wang’s mock delegations would have led to a House divided almost evenly, with about 215 Democrats and 220 Republicans. Wang finds that gerrymandering is a major form of disenfranchisement. In the

seven states where Republicans redrew districts, 16.7 million votes were cast for Republicans and 16.4 million votes for Democrats. The result, which one would expect to be nearly equal, was instead heavily lopsided, with seventy-three Republicans and thirtyfour Democrats elected. The packing of Democratic districts meant that 1.7 million Democratic votes were “wasted.” Democrats packed Republicans into districts in Illinois, wasting about 70,000 Republican votes. In both cases, he found that the impact of the number of votes wasted is far greater than the likely impact of voter ID laws or of voter fraud. Wang concluded, “Politicians, especially Republicans facing demographic and ideological changes in the electorate, use redistricting to cling to power. It’s up to us to take control of the process . . . and put the people back in charge of what is, after all, our House.” To preserve majority rule and minority representation, redistricting should be brought into fairer balance. First, nonpartisan redistricting commissions should be established in all fifty states. Second, a statistically robust judicial standard for partisan gerrymandering should be adopted. In Vieth v. Jubelirer, the Supreme Court conceded chicanery in Pennsylvania’s redistricting but declined intervention. However, the Court left the door open for future judicial remedies if a clear standard could be established.

Sources: This case relies heavily upon Sam Wang, “The Great Gerrymander of 2012,” New York Times, Sunday Review, February 2, 2013, http://www.nytimes.com/2013/02/03/opinion/sunday/the-great-gerry mander-of-2012.html?pagewanted=all&_r=o. See also Redistricting Majority Project, “2012 REDMAP Summary Report,” January 4, 2013, http://www.redistrictingmajorityproject.com; and Vieth v. Jubelirer 541 US 267 (2004).

60

Public Policy

Obstructionism works in part because the media tends to ignore the tactic when reporting measures that the Senate failed to vote upon. During the Obama years, conservatives have undeniably abused the filibuster. In the nation’s history, 168 cloture motions have been filed on presidential nominations, with 82 of them occurring under Obama. In the fall of 2013, Senate Republicans used the filibuster to block three of President Obama’s nominees to serve on the eleven-seat Court of Appeals for the Washington, DC, circuit, which is often referred to as the second most powerful court in the United States. Republicans had no objection to the qualifications of the nominees, but Republicans filibustered all three. Their stated objection was that the eight members of the court seemed to be able to handle the caseload without additional judges. The obvious ideological concern was that the court was balanced with four Republican and four Democratic appointees. Obama, by appointing three judges, was trying to “pack the court” with liberals. The president was merely making appointments he was authorized to make. Denying the president the right to make appointments he is constitutionally authorized to make was part of an ongoing power struggle. Republicans must win more presidential elections to get to appoint more judges. Senator Reid changed the rules of the Senate by removing the threat of filibusters to block executive and judicial appointments, other than to the Supreme Court, by a fifty-two to forty-eight vote. He noted that in the history of the United States, presidential nominations of federal district court judges have been filibustered twenty-three times. Of those twenty-three filibusters, twenty have been by Republicans during the presidency of Barack Obama.

The Executive Branch The executive branch, which was to administer and execute the laws adopted by the legislative branch, was treated in a rather cursory manner by the framers, though here too, they had fears. Benjamin Franklin worried that a unified executive would have the potential to drift to monarchy because of a natural human tendency to prefer strong government. But in fact, the Constitution says little about the powers of the presidency. Chief executives have relied on the clause that states, “The executive power shall be vested in a president,” to expand their authority. The Constitution does not even define “executive power,” which has allowed presidents to claim that their actions fall within the realm of inherent executive powers not precisely spelled out. Many of the powers exercised by the president today are not spelled out in the Constitution but are the result of statutes and congressional delegations of authority. In 1885, Woodrow Wilson, then a political science professor at Princeton University, published a government text titled Congressional Government, which accurately described the dominant power balance in the 1880s and the intent of

Polarized Politics

the Founders that the legislative branch would be first among equals.18 Their experience in war with a meddlesome monarch convinced them that the citizenry did not need, or want, government telling them how to run their political or economic lives. Nevertheless, by the end of the nineteenth century, Smith’s model of laissezfaire capitalism was apparently not performing as hoped. The concentration of wealth in fewer hands, along with increasing poverty and inequality, the obvious monopolistic practices of business, and the corrupting influence of money in politics, convinced many of the need to take action to restore public confidence in representative government. From 1896 until 1932, the Republican Party was dominant. The only Democrat to be elected to the White House in this period was Woodrow Wilson, who managed to win in 1912 when the Republican Party was split. Theodore Roosevelt had failed to wrest the Republican nomination from President William Howard Taft and ran on the Bull Moose ticket. Republicans controlled the House and Senate for all but six years of this thirty-six-year period. The business of the US government was widely accepted as just that, “business.” Despite their reputation as reformers, both President Theodore Roosevelt and Woodrow Wilson never seriously challenged the conventional probusiness outlook of the times. The Democratic Party was perceived to be antibusiness and led by radical populists. The Republican administrations of Warren G. Harding, Calvin Coolidge, and Herbert Hoover (1921–1933) claimed to represent a “return to normalcy” from both the military and economic excesses of the Roosevelt and Wilson administrations.19 The “return to normalcy” in practical terms also meant that the president returned to a more subordinate role relative to Congress in making policy. Just prior to the election of 1928, Hoover gave a speech known as “The Philosophy of Rugged Individualism” in which he praised the peculiar US system of “self-government.” He said that World War I required the government to temporarily assume unprecedented economic powers and impose a system of socialism upon the country from which the nation was still trying to escape. “We were challenged with the choice of the American system of rugged individualism or the choice of the European system of diametrically opposed doctrines—doctrines of paternalism and state socialism.”20 In 1928, ten years after the war, according to Hoover, the government should retreat and end all interference with business. His speech, very popular at the time, was a statement that all of government should defer to business interests in terms of policymaking.

Franklin D. Roosevelt Remakes the Presidency With the onset of the economic catastrophe of the Great Depression, Hoover reluctantly engaged in some public works projects. But he continued to proclaim that

61

62

Public Policy

the problems of poverty and unemployment were best left to “voluntary organizations and community service.” He worried that federal relief projects would make recipients dependent on government. The collapse of the US economy with the beginning of the Great Depression in 1929 and the failure of President Hoover to take sufficient action to deal with the growing problems of unemployment, poverty, and homelessness changed the views of the proper role of government. Economic theory at the time provided no solution. The market was expected to self-correct on its own without government intervention. Unemployment was also thought to be only temporary (the economic theory behind these views is developed in Chapter 4). In the meantime, everyone was advised to “tighten their belts” and ride out the storm. Government intervention was unnecessary and was thought to only introduce inefficiencies into the business model that could work everything out naturally if given time. If any action was to be taken, it should be to strengthen the financial sector so that money would flow to businesses and eventually “trickle down” to the workers, including the unemployed. But the economy continued to decline between 1929 and 1932, thereby setting the stage for a more liberal, Democratic takeover. President Franklin D. Roosevelt’s New Deal coalition, which was cobbled together to respond to the Great Depression, developed vigorous government programs to promote social welfare, civil rights, and unions. Some New Deal legislation attempted for the first time to regulate certain business practices that threatened economic goals set by the government. Republican opponents of the New Deal, who stressed laissez-faire business principles, including low taxes and little regulation, began calling themselves “conservatives.” The federal government took responsibility for society’s economic and social welfare to an unparalleled degree. The New Deal coalition of farmers, union workers, Catholics, Jews, African Americans, and intellectuals provided the Democratic Party with victories in seven of the nine presidential elections from 1932 to 1964 (the exception was Dwight Eisenhower’s presidency from 1952–1960). Democrats also controlled the House almost without interruption until 1995. During this period, many Republican voters supported popular New Deal programs like Social Security and accepted a more active role for government. Other Republicans, however, complained that the New Deal was a form of class warfare and was leading the country to socialism. The response to the Great Depression by the New Deal was to provide public work programs to create jobs, provide unemployment insurance, and establish a bewildering variety of other government programs. As a result, unemployment came to be considered a social probe and the responsibility of the government to resolve. The Employment Act of 1946 clearly states that creating the conditions that can best result in full employment is the obligation of the national government. Now all democratic governments accept the obligation to conduct business-friendly

Polarized Politics

policies to aid an expanding economy and full employment. Likewise, a government would not be considered democratic today if it did not accept responsibility to work for the economic well-being of its citizens. The traditional capitalist economic system survived in the United States as a result of the alleviation of those problems that laissez-faire capitalism handles poorly by the intervention of the Keynesian welfare state. Laissez-faire capitalism cannot on its own resolve the problems of poverty, unemployment, income insecurity, and environmental pollution. Welfare state spending increased employment during periods of economic downturns. The welfare state legitimizes the capitalist system among those at the bottom of the ladder by softening the rough edges of the system. The administration of Franklin D. Roosevelt beginning over three years after the beginning of the Great Depression forever changed the role of the president as the chief policymaker. Never again would the chief executive play a secondary role to Congress in shaping public policy. Even in cases of divided government, the situation in which the presidency is controlled by one party while the opposing party controls at least one House of Congress, the president is still the key policymaker. By the 1950s, the United States bore little resemblance to the nation it was in 1929. In the 1920s, the nation was a land of extremes between wealth and poverty, as well as sharp divides between dominant conservatives and embattled liberals. By the 1950s, Republicans and Democrats had a similar outlook and political thinking. The United States had become a middle-class, middle-of-the-road country. A reduction in wage differentials among workers even occurred, referred to as “the Great Compression” as an echo to “the Great Depression.” The narrowing of income gaps for a time transformed the nature of the US society and politics. Achieving a middle-class society, which had once seemed impossible, was taken for granted by the 1950s. The Great Depression challenged the assumptions of the classical model of economics. Roosevelt’s New Deal did for public policy what John Maynard Keynes’s theory did to economic notions of laissez-faire (Chapters 4 and 5 develop the economic theory in greater detail). Although the classical theory of economics was discredited by Keynesian theory, the basic tenets of conservatism rose like a phoenix from the ashes based on the political struggle for power in public policy. Ronald Reagan embodied the antigovernment philosophy of the classical era with the slogan he used in his inaugural address: “Government is not a solution to our problem; government is the problem.”21

The Activist Judiciary The Founding Fathers wrote obscurely about the nature of the federal court system. The judiciary was expected to have a smaller role in the process of determining

63

64

Public Policy

public policy than the other federal branches of government. The judiciary’s expanded role in shaping public policy is the result of its landmark decision in Marbury v. Madison (1803) when it claimed for itself the right to declare a law to be unconstitutional.22 Presidents can shape the legal environment by carefully nominating judges and justices who share the president’s legal views. As a result of increased political polarization, presidents are much more careful in considering the judicial philosophy of any nominee to the federal bench. As the politics have become more polarized, presidents give careful consideration to the compatibility of a Supreme Court nominee’s judicial outlook with the president’s. One would be naïve to believe that the political attitudes of judges, whether liberal or conservative, were not reflected in their judicial decisions. As they are essentially appointed for life, or until they decide to retire, Supreme Court justices are expected to remain on the bench long after the nominating president has left office. Judges and justices have considerable independence since they do not have the electoral pressures that weigh heavily on the other two branches of government. Justices on the Supreme Court, as members of the third branch, more than politicians in the legislative or executive branch, may pursue their political philosophies and ideologies. Throughout much of the nation’s history the judiciary rarely challenged the other two political branches. After World War II the Supreme Court decided several cases that liberalized public policy in several areas long before the legislature and the executive were prepared to act. They decided cases ranging from desegregation, abortion, voting rights, defendant’s rights under the Fourth and Fifth Amendments, to cases regarding freedom of the press and religion. The judiciary greatly expanded their power and involvement in what had been considered “political matters” outside the scope of the judiciary’s authority. However, conservative judges appointed during the Ronald Reagan and both George H. W. and George W. Bush administrations modified the Court’s position in the area of civil rights and criminal procedures. Reagan and George H. W. Bush replaced a liberal majority with a conservative majority, but the conservative justices did not give up the expanded power of the Court by replacing the judicial philosophy of activism in favor of judicial restraint. When conservatives were in the minority, they railed against perceived “judicial activism” of liberal judges. But now that they have a majority on the Supreme Court, they brush aside complaints of their judicial activism and defend their decisions by arguing that their interpretations reflect the true meaning of the Constitution.23 E. J. Dionne states that the conservatives are winning not an argument about the interpretation of the Constitution but a battle for power by having a conservative majority on the Supreme Court.24 Nate Silver using data stretching back to 1937, which is as far back as the data on ideology go, found that the Supreme Court in 2013 is the most conservative since 1937.25 Be that as it may, conservative politicians have applauded, not criti-

Polarized Politics

cized, the activism from a conservative Court. The most partisan decision handed down by the Court in at least forty years occurred after the presidential election between Al Gore and George W. Bush. In Bush v. Gore, the conservative majority conceded their opportunism when they insisted that the principles used to decide the case in Bush’s favor was “limited to the present circumstances” and could not be used as precedent in any other case.26 The case arose from the uncertainty of the election results in Florida between the two presidential candidates. Florida courts interpreting Florida law ordered a statewide recount of all ballots that indicated no presidential preference or more than one preference. At the time Florida courts ordered the recount, Bush led Gore by only 537 votes out of almost 6 million votes cast. Under Florida law, a lead of less than 1 percent automatically results in a recount. Specifically, those ballots to be recounted were the ones on which a chad (small rectangles voters were to have pushed through on punch card ballots) had not been completely punched through and detached from the ballot and those that showed a dimple, but not a punch through, on the ballot. What made the decision surprising was that the conservative justices on the Supreme Court had on several occasions said they believed in the paramount role of states’ rights and state court determining state law. They also expressed their adherence to the idea of judicial restraint. Finally, they agreed with a narrow interpretation of the equal protection clause of the Fourteenth Amendment. The recount had begun when the five conservative justices—Antonin Scalia, William Rehnquist, Sandra Day O’Connor, Anthony Kennedy, and Clarence Thomas—issued a stay preventing the Florida authorities from continuing or completing the recount, overriding the Florida courts in the process, in a clear action of judicial activism and not restraint. Three days later the same five justices issued the per curiam (as a whole) decision that stopped the recount. The Court said that its decision was limited to that case alone. They held the equal protection of those who had voted for Bush would be compromised to continue the recount. The Court said nothing of the equal protection rights of those whose ballots (mostly from minority districts) would not be counted. Stopping the recount before it was completed gave George Bush the state of Florida and a total of 271 electoral votes to Al Gore’s 266. The Supreme Court’s intervention installed the conservatives’ choice, George W. Bush, in the White House and allowed him to maintain the Court’s rightleaning composition with his appointments of Justice John Roberts and Justice Samuel Alito, who replaced Judge William Rehnquist and Judge Sandra Day O’Connor, respectively.27 Various media organizations recounting the Florida ballots have produced mixed results. They conclude that Bush would have won the initial limited recount originally sought by Gore, but that Gore would have won a

65

66

Case Study Controversy Surrounds Citizens United v. FEC Decision This case arose from the actions of a conservative group that put together a ninety-minute anti–Hillary Clinton film with the goal of derailing her presidential primary campaign in 2008. They intended to air the film on various TV stations in states crucial to Clinton’s campaign efforts. The Federal Election Commission (FEC) ruled that the anti-Clinton “documentary” was actually a campaign ad prohibited under the McCain-Feingold Bipartisan Campaign Reform Act of 2002 and therefore could not be aired. Citizens United challenged the ruling of the FEC, asking for an exception since they did not believe their film met the standard of electioneering communications as defined in the law. They specifically did not challenge the broader issue of the ban on corporate contributions to federal campaigns, which had been in effect since 1907 under the Tillman Act. The court listened to the case argued on the narrow grounds of whether a single part of the McCain-Feingold legislation was appropriately applied. Then, Chief Justice Roberts took the unusual step of asking that the case be reargued on an issue not raised by the plaintiffs to reexamine the rationale for Congress to have any power to regulate corporate “free speech.” In January 2010 the Supreme Court, in a 5–4 decision with the five conservative justices in the majority, held that corporations and unions have a First Amendment right to spend unlimited funds on campaign advertisements. Justice Anthony Kennedy, in writing the majority opinion, equated money with speech and equated corporations, whose goal is profits, with natural citizens. He asserted, “Independent expenditures, including those made by corporations, do not give

rise to corruption or the appearance of corruption,” so long as the communications are not “formally coordinated” with any candidate. The ruling rejected the long-held precedent that corporations could be treated differently because they are not “natural persons.” This decision held that political speech rights of corporations and those of natural persons are indistinguishable. In one fell swoop the Court overruled several federal laws restricting corporate electioneering spending and over twenty state laws that regulated election spending by corporations. The decision overturned about a century of Supreme Court legal precedent. Removing limits on corporate expenditures to political campaigns especially benefited the Republican Party. Justice John Paul Stevens in his dissent noted that “legal entities” are not “We the People” for whom the Constitution was established. He argued that corporate spending should not be given speech protection under the Constitution. Corporate spending is a business transaction by a board of directors. The dissenting opinion also pointed out that any foreign interest could now incorporate in the United States and spend freely on political ads on television. Corporate reaction to the decision was swift. Within days of the decision, Wall Street executives indicated their displeasure with Obama’s criticism of their role in the 2008 meltdown, and the size of their bonuses after being bailed out by the federal government, while Main Street was still on the ropes. They indicated they might hold back donations to Democrats and now donate more freely to Republicans. In short order Obama muted his criticism of Wall Street behavior and toned

continues

Polarized Politics

Case Study continued down initiatives from taxes on the wealthy to banking and insurance reforms. Opening unlimited corporate coffers to political action committees (PACs) vastly increases the influence of business, as both parties will increasingly depend on corporate contributions and will be more beholden than ever to corporate interests. The rise of “super PACS” was the most obvious development resulting from the decision. PACS have been around for years, but their contributions were limited to $5,000 from individuals. Super PACS can raise unlimited amounts of money from corporations, unions, and individuals on political advertisements, but they may not formally coordinate their spending with a candidate, as the Court held that political spending could corrupt only if it was directly involved in a candidate’s campaign. Several political committees simply declared their formal independence from their preferred candidate and

became instant super PACS and 501c “welfare” organizations funding attack ads. Despite the Supreme Court’s view, no reason can be found to think that independent spending is less likely to corrupt than direct contributions. Newt Gingrich is a case in point. He was totally dependent on Sheldon Adelson’s spending millions on campaign ads supporting his candidacy. Gingrich was as dependent on Adelson as if the latter had donated the money directly to his campaign committee, except that would have been illegal. Unsurprisingly, over $7 billion was spent in the election of 2012, about $2 billion more than the second most expensive election in US history in 2008. Of the “anonymous” (or dark money) cash spent to influence the elections through November 1, according to the nonpartisan and nonprofit Sunlight Foundation, $172.4 million (81 percent) was spent to help Republican candidates compared to $35.7 million (19 percent) to help Democrats.

Source: Sunlight Foundation, Reporting Group, “Fundraising and Spending by Political Leaning, 2011–2012,” https://reporting.Sunlightfoundation.com/outside spending-2012/by-affiliation.

statewide recount. Al Gore won the popular vote nationally. Bush was only the third president to win the presidency while failing to win the popular vote. One should note that Sandra Day O’Connor, who retired from the Supreme Court during the George W. Bush administration, publicly expressed her misgivings about the decision in an interview in 2013. She allowed that in the end, the decision effectively awarded the presidential election to George Bush, aroused the public, and sullied the reputation of the Court.28 In another controversial case, Citizens United, the Supreme Court swept aside the Founders’ concern over political corruption and a long tradition of law that dated to the Progressive Era while increasing the power of corporate and financial interests in the electoral sphere.

67

68

Public Policy

Potential Reforms in Campaign Policy The duration of political campaigns results in inordinate amounts of time and money to finance candidates, and if elected, candidates spend a great deal of time raising money for reelection. Presidential campaigns officially begin about two years before the election, but putting organizational networks in place to contact people and raise vast sums begins months and sometimes years before the official launch of the campaign. Politicians seeking donations go to where the money is— with most of their effort occupied in seeking donations from wealthy individuals and organizations, especially super PACS, that make up less than one half of 1 percent of the electorate.29 Meanwhile, the remaining 99.5 percent of the electorate are left on the outside feeling increasingly cynical about politicians and campaigns. As a result of the Court’s ruling in Citizens United, super PACS can flood campaigns with unlimited funds with the source of funding undisclosed to the public. A Washington Post–ABC news poll one year after the decision found that 80 percent of the public opposed the Court’s decision with 65 percent strongly opposed. Seventy-two percent were in favor of reinstating corporate campaign limits. Almost as many backed legislation by Congress to curb the ruling.30 Several states passed legislation requiring independent groups to disclose activities to influence elections at specific spending thresholds. Eight states passed laws prohibiting campaign contributions from government contractors.31 Senator Tom Udall (D-NM) has taken the position that in the years since the decision was handed down, it has come to represent the corruption and incompetence inherent in how elections are run in this country. Udall charges the Court has essentially legalized money laundering. He further claims transparency and disclosure are impossible to achieve as long as the decision stands. As a result, Tom Udall introduced an amendment to the Constitution with the support of twenty-six other senators to repeal Citizens United.32 Sixteen states signed on to the proposed amendment by the fall of 2013. The amendment strikes at what he sees as the twin fallacies that corporations are people and money equals speech. The amendment would give Congress the constitutional power to regulate the raising and spending of money in federal elections and give states the same authority in state and local elections.

Increasing Inequality and Party Choices Most in the United States are unaware of how dramatically the distribution of income has shifted in the past thirty-five years. Figure 3.2 illustrates parallel family income tabulations going back to 1966 for families in the twentieth, fortieth, sixtieth, eightieth, and ninety-fifth percentiles of the income distribution. It does not reflect the incomes of the poorest or the richest US residents, but it does rep-

Polarized Politics

Figure 3.2 The Top Takes Off: Income Distribution, 1966–2007

Source: US Census Bureau, “Historical Income Tables, F-3. Mean Income Received by Each Fifth and Top 5 Percent of Families, 1966–2007,” available at www.census.gov/hhes/www/income/histinc/incfamdet.htm.

resent a broad range of economic circumstances. The figure shows how income increases since about 1980 have become more concentrated at the top income levels, in contrast to the pattern of widely shared progress between 1966 and 1979. After about 1980, the income of those at the top soared while those in the bottom half earned only a little more than they did in 1980.33 From the mid-1970s onward, income growth has been slower overall and less evenly distributed. The differences are clear in Figure 3.2. This figure compares cumulative rates of real growth in the income distribution from 1966 to 1980 and from 1980 to 2011. The growth rate before 1980 was very egalitarian. After 1980, the income growth is obviously much less evenly distributed with those at the top peeling away. The Great Depression lives on in our collective memories while the Great Compression is largely forgotten.34 Larry Bartels found in his work Unequal Democracy that, in the 1960s under Presidents John F. Kennedy and Lyndon B. Johnson, income growth was extraor-

69

70

Public Policy

dinarily strong, with lower-income families faring even better than affluent families.35 From 1964 through 1969, families in the ninety-fifth percentile and above had a real income growth of 4.2 percent per year while the working poor had a real income growth of 5.6 percent per year, a situation that was at least partly attributable to Johnson’s Great Society programs, including Medicare and Medicaid, the Job Corps, food stamps, and the community action program.36 The civil rights movement destroyed the New Deal coalition since it depended on the inclusion of the South. Bill Moyers recounted finding President Johnson disconsolate in the evening after signing the Civil Rights Act on July 2, 1964, ending segregation in public facilities. Moyers asked, “What’s the matter? This was a great day. You should be jubilant.” Johnson looked at Moyers and said in effect, “I think we just handed the South to the Republicans for the rest of my life and yours.”37 At first, the civil rights struggle split southern whites, who supported segregation, from northern Democrats, who supported integration. When the civil rights movement pressed for equal access to jobs, housing, and education, northern Democrats also began to split, with lower-income workers tending to vote Republican. In 1964, the Republican presidential candidate, Barry Goldwater, linked conservatism to the US West and thereby broadened its appeal. He campaigned on a platform of significantly reduced taxes and government spending, reduction of government regulation of business, and the end of most government social programs.38 In 1968, Goldwater’s manifesto was linked to Richard Nixon’s “southern strategy,” which exploited white voters’ fears of African American demands for civil rights and the riots in many cities following the assassination of Martin Luther King Jr. The New Deal coalition was completely shattered in the election of 1968. After winning the 1980 Republican nomination, Ronald Reagan went to the Neshoba County Fair in Mississippi. There, near the site where three civil rights workers were murdered in 1964, he announced support for “states’ rights,” which was widely interpreted as a signal of opposition to federal enforcement of civil rights laws.39 Lee Atwater, Reagan’s campaign strategist, explained the evolution of the southern strategy, which originated in opposition to the Voting Rights Act, but then created an imaginary “liberal” elite who did not share the values of “conservative” hardworking voters. The word government was deliberately changed from its ordinary democratic usage as an elected agent of the citizenry. They and their corporate sponsors decided to depict government as a power-grabbing bureaucracy whose bumbling efforts at regulation prevented Smith’s invisible hand from working and reduced economic prosperity.40 Lee Atwater explained why the strategy worked: In the 1980s campaign, we were able to make the establishment, in so far as it is bad, the government, in other words, big government was the enemy, not big business. If

Polarized Politics the people think the problem is that taxes are too high, and government interferes too much, then we are doing our job. But, if they get to the point where they say that the real problem is that rich people aren’t paying taxes . . . then the Democrats are going to be in good shape.41

The modern GOP is based on a coalition with a disproportionate share of wealthy business executives, small- and moderate-size business owners, and whites struggling to maintain their status. The survival of the coalition depends on the smaller business owners and struggling whites believing that the economic stresses they have felt for the last several decades is primarily due to the government taking money from the wealthy and struggling middle class (the job creators) and giving it to the poor (the takers), keeping them dependent on government, when actually cutting taxes for the job creators would result in more jobs for the poor. The accuracy of this argument will be analyzed in depth in Chapter 5.

From Factions to Political Parties While the framers feared the tyrannical rule of despots, they had also experienced the threats to property and national unity that could occur when a government lacked the ability to act because it had insufficient power. James Madison famously indicated in The Federalist #10 the anxiety in Philadelphia over the tendency of people to divide into “factions,” with each faction seeking its own interest without regard for the public interest. In fact, government needed to break and control the violence of factions if the Republic was to be successful. Madison hoped that when many factions (or interest groups) were competing for influence, no one interest group would dominate. They would be impaled on the machinery of government allowing elected officials to prudently “promote the general welfare.” Of course, groups may join forces with each other to expand their power and influence with Congress through providing a combination of campaign contributions and electoral support with political parties. Groups could become powerful enough to dominate political parties. In the young Republic, political parties were viewed as a threat to social order.42 Today, one finds difficult, if not impossible, the thought of a free society without competition between political parties for political power. But in fact, political parties are not mentioned in the Constitution and indeed were created to overcome the separation of powers and checks and balances placed in the Constitution by the framers. Party competition is the enduring struggle between Democrats and Republicans for the control of public offices as the source of authority to make public policy. Members of the same political party constitute an enduring coalition that encourages loyalty and cooperation between party members in all branches of government to achieve policy goals specifically to overcome the fragmentation of power.

71

72

Public Policy

Party leaders do not merely follow public opinion. As political “entrepreneurs,” they try to shape the political environment by developing a public philosophy with consistent programs and policies to “sell” to the voting public. Voters, as consumers, attempt to purchase with their votes what is being offered in the political marketplace. Party leaders include not only those officials who have been elected to various offices, but also the organization with offices and staffs that work to develop party strategy, recruit candidates for office, help organize and run campaigns, articulate policy positions, coordinate policymaking with those controlling the apparatus of government, and provide outreach to voters. Parties are linked to the media, providing speakers for interviews and cues to the party rank and file regarding the respective party’s goals. The largest component of any political party is the electorate that identifies its interests as generally conforming to the goals of the Republican or Democratic Party. Party leaders work to provide an attractive party image regarding the party’s vision of, and its plan to achieve, a better society. As we will show shortly, from a rational-choice perspective, the parties do differentiate themselves and their policy goals from each other in an effort to attract a loyal following. People are attracted to different parties largely because of the psychological appeals regarding why certain policies, versus those of the other party, are more attractive to the individual. Party identification and loyalties facilitate voter decisionmaking. Although voters often claim to choose the “man and not the party,” which would imply considerable split-ticket voting, party labels clearly provide “brandname” recognition. Voters can make a decision with a reasonable amount of confidence about what position a candidate will probably take by knowing the politician’s party affiliation, something that is particularly true in a period of increasing party polarization. Voters’ choices are made much simpler by determining whether a candidate’s party affiliation matches their own.43 Without the knowledge that politicians exhibit a certain loyalty to each other based on party affiliation, the voter would have to become aware of each candidate’s position on a wide variety of issues to make informed decisions regarding his or her vote. Furthermore, other interest groups seek benefits through those holding office. Political parties were formed primarily to develop and maintain enduring voting blocs around an interrelated set of policy issues under a given party label. In this way the party serves to link the elites in governmental institutions and harmonize their views with the broad outlines of a public policy agenda. Research shows that as party polarization has increased, party loyalty among voters has also increased and split-ticket voting has declined substantially since 1980. In particular, roll-call studies indicate that Republican members of Congress have become more unified over the last forty years, and Democrats have become more uniformly liberal.44 The distance between party activists has also grown dur-

Polarized Politics

ing this same period.45 And since political parties are the primary organizing force in US politics, the growing ideological distance between Democrats and Republicans has increased the importance of party labels and ideological considerations when voters enter the voting booth. As political parties have become more unified internally and the ideological differences between them are clearer, the public in turn tends to perceive politics in more partisan terms.46 As the electorate is bombarded with media reports on the clashing party positions on the issues of the day, they generally identify more closely with the positions of the Democratic or the Republican Party and that party’s ideology. Party identification and ideology are the most important indicators of a person’s political orientation, an orientation that tends to be quite stable. Over the last fifty years, cultural differences and issues appear to have grown increasingly important in how voters view the two major parties and their respective candidates.47 Research suggests that US voters increasingly replace old class-based identities with cultural identities rooted in the country’s growing racial-ethnic and religious diversity. The result is that the presidential vote and party loyalties are becoming more polarized along racial and ethnic lines. Racial diversity increases the vote for Republican candidates among white voters while reducing it for Democratic nominees. Conversely, racial diversity increases Democratic identifications and decreases Republican identification.48 Culture is generally thought of as a way of life and shared values that help to shape one’s social identity, expected norms of behavior, and standards of political legitimacy. In a blatant appeal to cultural discrimination, the legitimacy of Obama’s presidency in the 2012 election came into question when his opponents challenged the existence, and then the authenticity, of his birth certificate and suggested he was not really “one of us.” The voting pattern in the 2012 election makes clear that culture and racial context are significant (see Table 3.1 below). The evidence indicates that party identifications along racial and ethnic lines are becoming more structured and will grow in importance in the future. Other research on ideological polarization concludes that rather than being deeply divided, most US voters are still centrists. Morris Fiorina and his coauthors found that most US voters are moderates with a solid majority in favor of pragmatic compromise. They found that members of Congress were much more polarized than the average voter.49 The “us versus them” perspective that is enhanced by polarization is also heightened by new sources of information such as the Internet.50 The Internet allows the mass public to reduce cognitive dissonance by selectively exposing themselves to sources that reinforce their predilections while ignoring opposing views. Talk radio shows led by hosts such as Rush Limbaugh and Glenn Beck also contribute to polarization by their divisive, red-meat rhetoric.51 Roger Ailes, pres-

73

74

Public Policy

ident of Fox News Channel and former media consultant for Richard Nixon, Ronald Reagan, George H. W. Bush, and other Republican candidates, makes no secret of his intent to support conservative points of view on his television network. And at the “progressive” end of the spectrum, MSNBC news has a clear goal of providing an opposing perspective to Fox News. Ideology-driven news programming highlights a relatively new problem for political parties: they are no longer the main source of political information. The media with its political commentators seen or heard nationally on a daily basis have become major sources of political information, and policy advocates often challenge politicians or chastise parties for not being sufficiently supportive of the media’s political views.

The Changing Profile of the US Electorate The 2012 presidential election produced several demographic milestones in the changing US electorate. According to a US Census Bureau report, the total number of non-Hispanic white voters decreased by about 2 million between 2008 and 2012, the first such drop by any racial group since the bureau first began collecting data in 1996.52 Between 1996 and 2012 the total percent of the white vote has declined from 83 to 74 percent. In another historic first, African Americans voted at a higher rate (66.2 percent) than non-Hispanic whites (64.1 percent). Voting rates for African Americans have been increasing steadily since 1996, from seven points below white participation rates to two points above. The presence of Barack Obama on the ballot in the last two election cycles contributed to the reversal of the black-white voting gap, but the rising black turnout predates Obama’s presence on the ballot. The share of voters who were racial or ethnic minorities has risen from just over one in six in 1996 to one in four in 2012. Between 1996 and 2012, African Americans, Asians, and Hispanics all increased their share of the voting population. Hispanics increased their share by about four percentage points and African Americans by about three points. In 2012, in another first, more white people died in the United States than were born.53 The decrease was small, about 12,400 out of about 198 million nonHispanic whites, but that news item calls attention to the fact that non-Hispanic whites are, as a group, considerably older than other racial and ethnic groups, with a median age of forty-two. The median age for Asians is thirty-four, while for African Americans, it is thirty-two, and Hispanics, it is under twenty-eight. Thus, as older white baby boomers begin to die off in greater numbers, Hispanics can be expected to become a significantly larger part of the US population. Table 3.1 also indicates that the “gender gap” in voting persists. In every presidential election since 1966, women have voted at higher rates than men. They are

75

Table 3.1 How Groups Voted in the Presidential Election, 2012 (in percent) Characteristic All Voters

Percentage of All Voters

Voted for Obama

Voted for Romney

100

51

47

Sex

Men Women

47 53

45 55

52 44

Race

White Black Hispanic Asian Other

72 13 10 3 2

39 93 71 73 58

59 6 27 26 38

Age

18–29 30–44 45–64 65 or older

19 27 38 16

60 52 47 44

37 45 51 56

Income

Under $50,000 $50,000–99,999 $100,000 and over

41 31 28

60 46 44

38 52 54

Union household

Yes No

18 82

58 49

40 48

Education

No high school diploma High school graduate Some college College graduate Postgraduate study

3 21 29 29 18

64 51 49 47 55

35 48 48 51 42

Party

Democrat Republican Independent

38 32 29

92 6 45

7 93 50

25 41 35

86 56 17

11 41 82

59 15 5 18

47 32 56 75

51 66 33 24

Political philosophy Liberal Moderate Conservative Most important issues

Economy Budget deficit Foreign policy Health care

Source: Roper Center Public Opinion Archives, “US Elections: How Groups Voted in 2012,” http://www.roper center.uconn.edu/elections/how_groups_voted/voted_12.html.

76

Public Policy

also more likely to support the Democratic rather than the Republican Party candidate (by about eleven points in 2012). The youth vote (ages eighteen to twentynine) provided another boost for Obama, even though the youth vote declined across all racial and ethnic groups. According to the Census Bureau data, voting rates among Hispanics (48 percent) and Asian Americans (47.3 percent) were far below that of either whites or blacks. About 12 million eligible Hispanics failed to cast a ballot. Despite low voting rates, Hispanics are 17 percent of the total population, but 24 percent of the population under age eighteen.

Party Politics and Immigration Policy Prior to the onset of the Great Recession, George W. Bush supported a proposal in Congress to provide a “path to citizenship” to many of the roughly 12 million undocumented workers living in the United States. In 2006, Republican senator John McCain of Arizona cosponsored a bill with Democratic senator Ted Kennedy of Massachusetts with the goal of providing a path to citizenship. By 2010 McCain not only dropped his support for any federal legislation on the matter but spoke on behalf of pending legislation in the Arizona legislature that would allow police to demand papers from anyone suspected of being undocumented and arrest anyone unable to produce sufficient documentation. The recession, with rising unemployment and frightening economic insecurity for many, provided the Republican Party with a powerful wedge issue to pull many white Democrats toward the Republican Party, by charging that “illegal” immigrants were receiving food stamps, health care, education funding, and other benefits, diverting resources from lawful US residents. They also charged that undocumented workers were undermining US culture and support for the concept of US exceptionalism. Before the election of 2012, economic fears appeared to be benefiting the Republican cause. Mitt Romney endorsed the Republican Party’s anti-immigrant stance against amnesty and a path to citizenship for undocumented workers, indicating that they could “self-deport” to their native country. The Republican Party’s opposition to the DREAM Act and meaningful immigration reform and the party’s active support of voter suppression laws across the nation had the effect of galvanizing Hispanic support for Obama’s reelection. The Republican Party believed that it could still win national elections as a white party, gambling that it would take a few more national election cycles before the Hispanic vote would reach a critical mass. The election of 2012 made their miscalculation obvious. Since the election of 1972 and the Republican Party’s southern strategy, the GOP’s dependence on winning a disproportionate share of white votes was successful. But its edge among white voters has declined since 2000 as minority votes began growing as a proportion of the total vote. Furthermore, the Democratic Party won two national elec-

Polarized Politics

tions despite losing most of the southern states, driving home the point to the Republican Party establishment that they can no longer disregard the Hispanic vote. Republican involvement in voter ID laws to discourage minority voting was seen by many, especially by members of the minority community, as an attempt to hold back the rising demographic tide rather than accommodating it. In particular, Republican opposition to citizenship for undocumented workers seemed to be about “voter suppression” being framed as “immigration reform.” The Republican Party leaders, in addition, are well aware of the rapidly growing Hispanic population that are already citizens, and their children who turn eighteen years of age at the rate of about 66,000 per month. Their goal is to slow down the tide of at least 12 million undocumented workers likely to join the Democratic Party.

Conclusion The meeting of the Founding Fathers in Philadelphia in 1787 had as a backdrop the hard-fought victory in a war for independence. The Founding Fathers had more recently experienced the difficulty of maintaining national unity under the Articles of Confederation, which gave the national government insufficient authority to enforce its will. They were also concerned with the problem of the potential violence of factions pursuing their own self-interests, and they were aware, as Madison noted, that the most common and enduring cause of factions lay in the unequal distribution of property. The fragmentation of governmental power to prevent an excessive concentration of power brought into being the countervailing power of political parties to overcome the resulting inefficiencies of too much decentralization. Political parties were formed to encourage individuals seeking political office to form alliances with other like-minded officeholders to form voting coalitions and alliances between the executive, legislative, and judicial branches. In this way, they overcame some of the effects of the separation of powers and federalism on behalf of interest groups seeking benefits from government. The political parties were apt, not surprisingly, to divide between liberal and conservative tendencies. In the United States, the classical liberals wanted to protect individuals from the threat of an overbearing government in order to ensure individual liberty. Originally known as Jeffersonian Democratic-Republicans, they evolved into today’s Democratic Party, the oldest political party in the United States. By the latter part of the nineteenth century, the Democrats realized the potential for the government to enhance individual freedom through positive action to create jobs or legislate civil rights. The Republican Party was formed from the remnants of the Whig Party just prior to the Civil War. Shortly after the Civil War, Republicans came to be known primarily as representatives of commercial and business interest groups. The Great Depression with its accompanying economic chaos and the popularity of Franklin D. Roosevelt’s administration in dealing with that chaos made the Demo-

77

78

Public Policy

crats the majority party until the 1970s. Roosevelt’s policies expanded people’s expectations about the responsibility of government to “promote the general welfare.” Government assumed responsibility for the economic health of the nation, including regulating industry and the financial sector as well as creating the economic conditions that would result in full employment of the labor force. Roosevelt was a pragmatist in his search for policies that would get the country moving out of the Depression. He borrowed policy options from across the political spectrum. The Republican Party was largely swept along by the tide of the New Deal and the postwar years. Both parties followed moderate pragmatic approaches in fighting for the vital center of politics. The Democratic coalition of labor, ethnic groups, southerners, and intellectuals was severely strained by the late 1970s. In 1980, Ronald Reagan won an important victory with a greater commitment to a “conservative” philosophy that was a return to the idea that government could not be a solution to the nation’s problems because it was the problem. The Republican Party became more intent on advancing conservative principles than working across the aisle to achieve compromise. The Great Recession has put increasing stress on the policy process. Barack Obama won reelection with a comfortable electoral margin and is just the fourth president in the last century to have won both elections with over 50 percent of the popular vote. Yet by abuse of the filibuster, aggressively gerrymandering congressional districts, and voter suppression, the Republican opposition has managed to obstruct much of Obama’s policy agenda. Many conservatives express a desire to dismantle the social welfare legislation of the New Deal. The hyperpartisanship and resulting gridlock is the basis for the lack of progress in a public policy agenda and the low regard for Congress in US public opinion.

Notes 1. This quote is variously attributed to Thomas Jefferson, Thomas Paine, John Adams, and Henry David Thoreau. See “Respectfully Quoted: A Dictionary of Quotations,” Great Books Online, www.bartleby.com/73/753.html, accessed June 12, 2013. 2. James Madison, The Federalist #10, Library of Congress, http://thomas.loc.gov /home/histdox/fed_10html. 3. James Madison, The Federalist #51, Library of Congress, http://thomas.loc.gov /home/histdox/fed_51.html. 4. US Census Bureau, Statistical Abstract of the United States, 2012 (Washington, DC: US Census Bureau, 2011), pp. 18–19. 5. Sarah Binder, “Reforming a Broken Senate: Filibuster Reform,” Senior Fellow, Brookings Institution, Testimony Before the Committee on Rules, US Senate, April 22, 2010, posted online at CREW/Citizens for Responsibility and Ethics in Washington, http://www.citizensforethics.org/policy/entry/filibuster-reform. 6. Brian Levy, “CNN Ignored Evidence of GOP Obstructionism, Allowed McConnell to Attack Dems,” Media Matters for America, July 24, 2007, http://mediamatters.org /research/2007/07/24cnn-ignored-evidence-of-gop-obstructionism-allo/139411.

Polarized Politics 7. James Fallows, “For the Love of God, Just Call It a Filibuster,” The Atlantic, April 17, 2013, http://theatlantic.com/politics/archive/2013/04/for-the-love-of-god-just-call-it-a -filibuster/275087/. 8. Ibid. (emphasis in original). 9. Evan Brandt, “Toomey Doubts Second Senate Gun-Control Vote Any Time Soon,” Mainline Median News, May 1, 2013, http://mainlinemedianews.com/articles/2013/05/01 /main_line_times/news/doc5180f9ddb3dee859736381.txt?viewmode=fullstory. 10. Binder, “Reforming a Broken Senate,” p. 2. 11. Andrew Cohen, On Filibuster, It’s Past Time to End “False Equivalence” (New York: Brennan Center for Justice, April 23, 2013), p. 1. 12. Mimi Murray, Digby Marziani, Jonathan Backer, and Diane Kasdan, Curbing Filibuster Abuse (New York: Brennan Center For Justice, November 16, 2012), p. 3, http://www.brennancenter.org/publication/curbing-filibuster-abuse. 13. Jonathan Backer, Filibuster: Senate Rules Deal Yields Good and Bad News (New York: Brennan Center for Justice, January 29, 2013), p. 1. 14. Jordan Sargent, “Senate Hits New Low As Mitch McConnell Filibusters Himself,” Gawker, December 6, 2012, http://gawker.com/5966445/Senate-hits-new-low-as-mitch -mcconnell-filibusters-himself. 15. James Madison, The Federalist #58, http://thomas.loc.gov/home/histdox/fed _58.html. 16. Alexander Hamilton, The Federalist #22, http://thomas.loc.gov/home/histdox/fed _22.html. 17. Dylan Matthews, “17 Bills That Likely Would Have Passed the Senate if It Didn’t Have the Filibuster, Wonk Blog, Washington Post, December 5, 2012, http://www.washington post.com/blogs/wonkblog/wp/2012/12/05/17-bills-that-likely-would-have-passed-the-senate -if-it-didnt-have-the filibuster/. 18. Woodrow Wilson’s text Congressional Government: A Study in American Politics is now available online under the Gutenberg Project (EBook #35861), released April 13, 2011. 19. Calvin Coolidge was selected by Warren Harding to be the vice presidential candidate on his ticket because, as governor of Massachusetts, Coolidge had called out the National Guard to crush the Boston police strike of 1919. Unions were not a significant constituency of the Republican Party, which made them an easy group against which to demonstrate the party’s resolve to protect business property and laissez-faire attitudes toward business. Although business had free rein, unions were not left unregulated. 20. Herbert Hoover, “Principles and Ideals of the United States Government,” October 22, 1928, http://millercenter.org/president/speeches/detail/6000. 21. Ronald Reagan, “Inaugural Address,” American Presidency Project, January 20, 1981, http://www.presidency.ucsb.edu/ws/?pid=43130. 22. Marbury v. Madison, 1 Cranch 137 (1803). 23. E. J. Dionne Jr., “The Third Political Branch,” Washington Post, June 27, 2013, p. A21. 24. Ibid. 25. Nate Silver, “Supreme Court May Be Most Conservative in Modern History,” Five Thirty Eight Blog, New York Times, March 29, 2012, http://fivethirtyeight.blogs.nytimes .com/2012/03/29/supreme-court-may-be-most-conservative-in-modern-history/?_r=o. 26. Bush v. Gore, 531 US 98 (2000) (6th paragraph from the end of Part II-B). 27. Dionne, “The Third Political Branch,” p. A21.

79

80

Public Policy 28. Steve Nelson, “Sandra Day O’Connor Now Doubts Wisdom of Bush v. Gore,” US News, April 29, 2013, http://www.usnews.com/news/newsgram/articles/2013/04/29/sandra -day-oconnor-doubts-wisdom-of-bush-v-gore. 29. Bob Bauer and Trevor Potter, “A Fresh Look at Money in Politics,” Washington Post, May 10, 2013, p. A23. 30. Public Citizen, “12 Months After: The Effects of Citizens United on Elections and the Integrity of the Legislative Process,” January 2011, p. 17, http://www.citizen.org/documents ?Citizens-United-20110113.pdf. 31. Ibid., p. 30. 32. Charles P. Pierce, “Tom Udall’s Bold Solution to Overturn Citizens United,” Esquire, November 20, 2012, http://www.esquire.com/blogs/politics/tom-udall-citizens -united-amendment-14761989. 33. Century Foundation, The New American Economy: A Rising Tide That Lifts Only Yachts (New York: Century Foundation, 2004), http://www.tcf.org/assets/downloads/tcf -NewAmEc.pdf. 34. Paul Krugman, The Conscience of a Liberal (New York: W. W. Norton, 2007), p. 39. 35. Larry Bartels, Unequal Democracy: The Political Economy of the New Gilded Age (Princeton, NJ: Princeton University Press, 2008), p. 44. 36. Ibid. 37. Bill Moyers, Bill Moyers Journal, transcript, PBS, August 29, 2008, www.pbs.org /moyers/journal/08292008/transcript4.html. 38. See Barry Goldwater, The Conscience of a Conservative (New York: Regnery, 1990). 39. Lou Cannon, Governor Reagan: His Rise to Power (New York: Public Affairs, 2003), pp. 477–478. See also Michael Goldfield, The Color of Politics: Race and the Mainspring of American Politics (New York: New Press, 1997), p. 314. 40. Paul L. Nevins, The Politics of Selfishness: How John Locke’s Legacy Is Paralyzing America (Santa Barbara, CA: Praeger, 2010), p. 134. 41. Kevin Phillips, The Politics of Rich and Poor: Wealth and the American Electorate in the Reagan Aftermath (New York: Random House, 1990), p. 32. 42. A dramatic illustration of this occurred in 1798 when the Federalist Party under John Adams controlled the national government. The opposition led by Thomas Jefferson’s Democratic-Republican Party was viewed as traitorous by the Federalists who passed the Alien and Sedition Acts, which effectively made criticizing the government or its officials a violation of the law. This effort to suppress freedom of speech and the press failed and helped Jefferson’s Democratic-Republicans win the White House in 1801. 43. See V. O. Key Jr., The Responsible Electorate: Rationality in Presidential Voting 1936–1960 (Cambridge, MA: Harvard University Press, 1966). 44. David C. Kimball and Cassie A. Gross, “The Growing Polarization of American Voters,” speech presented at “The State of the Parties: 2004 and Beyond” conference, Akron, OH, October 6, 2005. 45. Ibid. 46. David Kimball, “A Decline in Ticket Splitting and the Increasing Salience of Party Labels,” in Herbert F. Weisberg and Clyde Wilcox, eds., Presidential Elections: The 2000 Election (Palo Alto, CA: Stanford University Press, 2004). 47. Joel Lieske and Edward Hasecke, “The Cultural Basis of Party Identification,” paper delivered at the 2009 meeting of the American Political Science Association, Toronto, Canada, p. 1.

Polarized Politics 48. Ibid., p. 2. 49. Morris Fiorina, Samuel Abrams, and Jeremy Pope, Culture War? The Myth of Polarized America (New York: Pearson Longman, 2005). 50. See generally Bruce Bimber and Richard Davis, Campaigning Online: The Internet in US Elections (New York: Oxford University Press, 2003). 51. David Barker, Rushed to Judgment? Talk Radio, Persuasion, and American Political Behavior (New York: Columbia University Press, 2002). 52. Thom File, The Diversifying Electorate—Voting Rates by Race and Hispanic Origin in 2012 (and Other Recent Elections), Current Population Survey Reports, P20-569 (Washington, DC: US Census Bureau, 2013), p. 2. 53. Carol Morello and Ted Mellnik, “Whites’ Deaths Outpace Births,” Washington Post, June 13, 2013, p. A3.

81

4 Political Economy: The Basis of Public Policy

It is essential for any student of public policy, and it is increasingly important for an attentive public, to be informed about and understand basic economic principles that relate to economic policy considerations. To this task, we now turn.

Adam Smith and the General Welfare The essentials of Adam Smith’s thought were presented in Chapter 2, so we will briefly review only a few points here. Meanwhile, we would encourage a review of the discussion of Adam Smith in Chapter 2. Adam Smith was alive during much of the eighteenth-century birth of marketplace capitalism. Consistent with other Enlightenment thinkers, Smith was an optimist and believed that human thought could produce virtually unlimited progress. Smith was also a professor of moral philosophy, and saw economics as a branch of moral philosophy with a calling to improve the condition of humanity, especially that of the poor.1 As a moral philosopher Smith disliked the greed at the very center of the system. Smith rejected the notion that associated the wealth of an individual with a superior morality. He also rejected the “unsocial passions” of greed and self-interest exhibited by merchants that led them to enlist government to give them more power. Smith was never comfortable around men of commerce whose conversation, he suggested, usually ended in a conspiracy against the public to raise prices. However, he held out hope that in a competitive market with many buyers and sellers, the individual businessman would be a victim of his own greed and market 83

84

Public Policy

forces. Businessmen could not raise prices above the natural price for fear that other greedy capitalists would undercut their price. The result would force capitalists to invest all their profits back into the business to produce their products more efficiently, thus driving prices down further. Thus workers could afford goods that would have previously been economically out of their reach. Stability and growth were inherent characteristics of capitalism. Such a market he thought might selfadjust and return to its long-term growth pattern if disturbed by turbulence in market forces. By pursuing self-interest, a person would maximize benefits to himself or herself but also benefit society. He hoped that free markets would lead to an equitable distribution of “the necessaries of life.”2 However, Smith also believed that governments were in reality formed by the rich to defend their property against those who had none at all, and he was opposed to the mercantilists’ constant effort to force workers’ wages down. He was in favor of what are today termed “living wages” or wages sufficient to provide a comfortable income for workers.3 But Smith had several qualifications to his theory and warned that it would not work if monopolies or oligopolies were present, as they could control market competition within certain limits and not be a victim of market forces. He also warned that for the model to work, income would have to be equitably distributed. If not, the market would mirror demand and produce a great deal for those with money and very little for those without money. As noted previously, Smith has been selectively read by many who support his model and ignore his qualifications, which, if operable, could justify government involvement and regulation of the economy.

The Haunting Specter of Karl Marx Karl Marx published The Communist Manifesto in 1848, sixty-two years after Smith’s publication of The Wealth of Nations. Marx agreed with Smith that greed and self-interest were the driving forces of capitalist production. When he wrote, capitalism was no longer in its infancy and some of its problems were clearly visible. Marx seized upon Smith’s qualifications. Smith had warned that free-market capitalism would not function in the desired manner in the presence of monopolies, yet Marx saw monopolistic power everywhere he looked. Through monopolies, wealth became concentrated in fewer and fewer hands. Monopolists could exploit labor by constantly driving down wages, contributing to the increasing misery of the masses. Marx found the vastly unequal distribution of income to be inevitable in laissez-faire capitalism. Smith’s hope that competitive market capitalism would lead to an equitable (although not equal) distribution of income had come to naught. Smith and Marx also shared a disdain for capitalists and their “insatiable greed.” Marx posed a different view of market economics than those of the classical economists, which led him to a radically different proposed solution for society’s problems. Marx disagreed with the capitalist assumption that politics and econom-

Political Economy

ics could be separated. To the mercantilists, the state was a powerful force to direct the economy. To the classical liberals, the state was a threat to economic freedom. To Marx, the state was not independent of the economic structure. He felt that the real, though unstated, purpose of the state in a free-market system was to serve the interests of the wealthy owners of capital. Despite his misgivings about the effect upon the populace in general, Marx was impressed with the ability of a capitalist economy to automatically allocate resources efficiently with no direction from the government and to be extraordinarily efficient in producing goods and services. As Marx and his colleague Friedrich Engels commented, “the bourgeoisie, during the rule of scarce 100 years, has created more massive and more colossal productive forces than have all preceding generations together.” Capitalism transformed the world: The bourgeoisie, by the rapid improvement of all instruments of production, by the immensely facilitated means of communication, draws all nations . . . into civilization. . . . It compels all nations, on pain of extinction, to adopt the bourgeois mode of production; it compels them to introduce what it calls civilization into their midst, i.e., to become bourgeois themselves. In a word, it creates a world after its own image.4

Capitalism swept aside all former relationships and “left no other bond between man and man than naked self-interest.”5 Marx viewed history as a continuing struggle between elites and the masses. He thought that the class struggle between capitalists and workers over profits and wages would ultimately lead to the end of capitalism. Marx, unlike Smith, saw the potential for instability and chaos in the laissez-faire market economy. His intricate analysis held that capitalists increased their profits and wealth only at the expense of the workers. In his theory of surplus value, he argued that exploited labor generates profits, which are squeezed out through the capitalist ownership of machinery. Marx shared Smith’s distrust of entrepreneurs, whom both saw as seizing every opportunity to use the state to enhance their power at the expense of the workers. He emphasized the importance of economic and social instability resulting from the tension between the opposing demands of capital and labor. In his view, the rapaciousness of business results in ever-larger business firms as small firms go under and their holdings are bought up by surviving firms. This trend toward a few large firms and the resulting concentration of wealth intensifies the struggle between labor and capital and will eventually lead to a small group of wealthy capitalists and a mass of impoverished workers. In the end, the imbalance will be so great that it will cause the market system to collapse. The means of production will then be centralized: that is, taken over by the government. Great inequalities and exploitation will cease.

85

86

Public Policy

Critics of Marx point out that, despite difficulties in market economies, they have not collapsed. On the contrary, those systems that ostensibly tried to model themselves on Marx’s precepts have shown the most internal tension and, in most instances, have come unraveled. However, market capitalism has survived in part because it has been pragmatic and moved away from a laissez-faire model. In particular, government public policy programs have moved into many areas to ameliorate the living conditions of middle- and lower-income workers.

The Political Impact of the Great Depression The Great Depression was a worldwide economic downturn that began in the United States. Historians usually date the beginning of the Great Depression to the collapse of the stock market on “Black Thursday” (October 24, 1929).6 That crash began the deepest and longest economic catastrophe in modern history, lasting in the United States until the latter half of the 1930s. A reminder is in order here that when the Great Depression began, laissez-faire economics was still the accepted economic perspective, and the popular culture was one of rugged individualism. Consequently, individuals had little expectation that government should provide them assistance, though aid to business was a different matter. Herbert Hoover, two years into the Great Depression, stated, “The sole function of government is to bring about a condition of affairs favorable to the beneficial development of private enterprise.”7 The effects of this depression were devastating, however, and shook the very foundations of the society. For anyone who did not live through the Great Depression, grasping the dimensions of the catastrophe is difficult, but the statistics are staggering. The Depression wiped out half of the value of all goods and services produced in the United States. Residential construction fell by 95 percent. A quarter of the labor force lost their jobs; another quarter had their jobs reduced from full- to part-time or had their wages reduced. Deflation reduced prices and wages while raising the burden of debts. Over 9 million savings accounts disappeared when 5,000 banks failed, and more than 1 million mortgages were foreclosed on. Keep in mind that the total US population, at that time, was just 122 million. International trade fell by more than 50 percent. As jobs were lost, corporate profits and tax revenues plunged. Still, many of the more affluent who had not been seriously hurt by the Depression viewed the crisis with unruffled detachment. In other countries, political upheavals resulted in dictators gaining power—including the most notorious of all, Adolf Hitler. When Franklin D. Roosevelt was sworn in as president on March 4, 1933, the Depression had been raging for three and one-half years. Unemployment had gone from 4 percent to over 25 percent, with all the attendant difficulties mentioned

Political Economy

above. By 1933, the level of despair raised doubts about whether market capitalism could survive. In his speech accepting the Democratic Party’s nomination for president, Roosevelt had proposed a new public philosophy: “Throughout the nation men and women, forgotten in the political philosophy of the Government, look to us here for guidance and for more equitable opportunity to share in the distribution of national wealth. . . . I pledge myself to a new deal for the American people. This is more than a political campaign. It is a call to arms.”8 Roosevelt introduced a new public philosophy that reshaped the relationship between citizens and government by proclaiming that government had a duty to intervene to promote the general welfare when capitalism failed. The federal government entered the economic life of the nation through the New Deal to assume responsibility for the nation’s economic well-being. Upon taking office Roosevelt proceeded, in a period now referred to as “the Hundred Days,” to push several major laws through Congress, supported by new “fireside” chats and thirty press conferences. The policies of Roosevelt made profound changes in government’s attitude and responsibilities toward citizens and created the ideological conflict that animates US politics to the present day.9 The number of Roosevelt’s policies that transformed US society was noted by Arthur Schlesinger Jr., who wrote: Who can now imagine a day when America offered no Social Security, no unemployment compensation, no food stamps, no Federal guarantee of bank deposits, no Federal supervision of the stock market, no Federal protection for collective bargaining, no Federal standards for wages and hours, no Federal support for farm prices or rural electrification, no Federal refinancing for farm and home mortgages, no Federal commitment to high employment or to equal opportunity—in short, no Federal responsibility for Americans who found themselves, through no fault of their own, in economic or social distress.10

As noted earlier, Roosevelt revolutionized public policymaking in the United States and changed the presidency in so doing. Fiscal policy involves the use of government taxing and spending to stimulate or slow the economy, and the federal budget is the means by which fiscal policy is implemented. The government can increase or decrease aggregate demand by increasing or decreasing its share of taxing and spending. Tax cuts, especially when directed toward middle- and lower-income workers, will stimulate demand by putting more money in the hands of consumers and businesses. Increased spending results in increased employment to meet those demands. Conversely, increasing taxes (the least popular of all fiscal policies), in addition to financing public policies, is intended to curb spending and slow an inflationary economy. New Deal legislation built in what are referred to as automatic stabilizers, in which fiscal policy automatically responds countercyclically to certain economic

87

88

Case Study Were Franklin D. Roosevelt’s New Deal Efforts Ineffective? The recession that began in 2007 is the longest since the Great Depression. President Barack Obama, based on what he saw as the success of Roosevelt’s actions in the 1930s, proposed a major package of spending to stimulate the growth of jobs and the gross domestic product (GDP) during the current recession. Some political opponents argued that Roosevelt’s deficit spending was a failure and did not get the country out of the Depression. Therefore, they were opposed to Obama’s call for urgent action and proposed a policy of spending and tax cuts instead. With such a crucial public policy debate raging, one should expose the myth that the programs of the New Deal had little effect in stimulating production or reducing unemployment. Critics claim the major spending in preparation for war in the late 1930s restored the nation’s economic health, not Roosevelt’s New Deal. This myth cannot withstand the most basic economic scrutiny. Figure 4.1 illustrates the changes in the GDP during the New Deal. Department of Commerce data on the GDP indicate that it fell 28 percent from 1929 to 1932. In 1933, the nosedive was halted as it sank another 1.3 percent. It then began an ascent more rapid than its decline. Between 1934 and 1936, it climbed 32.7 percent, exceeding the previous record GDP of 1929. Real GDP never fell below the 1929 point again. Consumer spending and after-tax personal income also exceeded their 1929 summit by the end of 1936. With the GDP having surpassed the previous high point in 1936, Roosevelt believed that the economy was over the crisis, and government support could be reduced. Accordingly, he severely trimmed New Deal programs in an effort to reduce the budget deficit in 1937. At the same time, the Federal Reserve doubled reserve requirements for banks, causing interest rates to

rise. Rising rates along with Roosevelt’s slashing of spending caused the nation to fall into another recession from 1937 to 1938. Roosevelt abruptly reversed direction again, and by 1939, the GDP raced beyond the previous high of 1937. After 1939, the increased government spending in preparation for the possibility of war decisively brought the GDP to such levels that unemployment was driven to its lowest level since data had been collected. A second major argument that Roosevelt’s policies were not effective is based on the claim that unemployment shot up between 1929 and 1933 and stayed persistently high, although declining, after the enormous stimulus spending from 1933 through 1940. The monetarist argument claims that, if convergence to full employment is so slow, it should be allowed to happen without government intervention. Interestingly, the Bureau of Labor Statistics (BLS) did not include workers as employed in the 1930s when they received their paycheck from a government program, even though they performed work for various New Deal programs. These workers were defined as “emergency workers” and excluded from the employment figures. Michael Darby discovered this “conceptual” error in that, from a Keynesian perspective, “labor voluntarily employed on contra-cyclical construction and other government projects should be counted as employed.” A person who accepted a job with an emergency work-relief program and stopped looking for a job was clearly employed. In short, the treatment of government work-relief employees as unemployed in the BLS “data is inconsistent with both the modern BLS definition of unemployment and with the US national income accounts.” The adjusted data drastically change the empirical conception of unemployment during the 1930s. As Darby states, the notion of

continues

Political Economy

Case Study continued an “extremely slow recovery from 1934 through 1941 is shown to be a fiction based on erroneous data. From 1933 to 1936 the corrected unemployment rate fell by 3.6 percentage points per year, and there is every reason to suppose that the natural rate of about 5 percent would have been reached by 1938 had the Fed [Federal Reserve] not doubled reserve requirements between August 1936 and May 1937.” Figure 4.2 illustrates the significance of the uncorrected unemployment in analyzing the effectiveness of New Deal policies. Finally, critics of Roosevelt also argue that World War II ended the Depression, not his

deficit spending. This conclusion misses the point, however. Roosevelt’s New Deal deficits were not large enough to offset the reduction in private expenditures by business, households, and state governments to reduce unemployment to full employment levels. But massive government spending on a huge public works program, more generally known as World War II, ended the Depression. This inescapable fact actually validates Roosevelt’s policies and reinforces Keynes’s theory of the role of government as employer of last resort and purchaser of goods to stimulate the economy.

Source: Michael R. Darby, “Three-and-a-Half Million US Employees Have Been Mislaid: Or, an Explanation of Unemployment, 1934–1941,” Journal of Political Economy 84, no. 1 (February 1976): 1–16.

events. For example, when the economy slows down and unemployment rises, tax revenues decline while government spending for unemployment insurance benefits, food assistance, welfare, and other transfer payments rise. The budget deficit also rises as a result. Tax revenues and expenditures react automatically to changing economic conditions without requiring new policies. These automatic adjustments help stabilize the economy. On the other hand, with a reduction in unemployment, tax receipts rise at the same time that expenditures for welfare decline, reducing budget deficits. Automatic stabilizers are important because they adjust immediately to a rising or falling economy and do not require any policy debate to begin working. Therefore, the deficit will rise during a recession and shrink during a robust economy, even with no change in fiscal policy. So the same fiscal policy could result in a surplus, a balanced budget, or a deficit. Roosevelt’s successors in the White House have stood to benefit from this legislation, which works automatically to encourage economic stability. The crisis of the Great Depression was resolved by Roosevelt’s policies, which shifted the burden onto capital by strengthening worker rights through support for the first federal minimum wage, collective bargaining, unemployment insurance, and Social Security.11 With the specter of socialism as the alternative if economic revival failed, a major portion of US business leaders grudgingly conceded the

89

90

Public Policy

Figure 4.1 US Gross Domestic Product, 1929–1941 (percentage change from preceding period in real GDP)

Source: US Department of Commerce, Bureau of Economic Analysis, “Historical Tables. Table 1.1.1. Percent Change from Preceding Period in Real Gross Domestic Product,” available at http://bea.gov/national/nipaweb /TableView.asp?Selected Table=1&Freq=Qtr&FirstYear=1930&LastYear=1941, accessed August 20, 2009.

need for negotiating a compromise of higher wages for workers, leading to the period of the Great Compression. The financial elite fiercely resented government regulation and opposed Roosevelt’s reforms as a threat to their privileged status and longed for a return to laissez-faire capitalism.

The Realist Critique of Keynes John Maynard Keynes (1883–1946) was most responsible for providing a new framework for macroeconomic analysis, which, not incidentally, provided a way out of the Depression. In accomplishing this feat, he directly challenged basic postulates of the classical school as well as Marx’s pessimistic conclusions regarding the inevitable collapse of the market system. Keynesian theory represents his effort to explain how the chaotic conditions produced by the Great Depression of the 1930s occurred.12

Political Economy

Figure 4.2 US Unemployment Rate, 1929–1941

Source: Michael R. Darby, “Three-and-a-Half Million US Employees Have Been Mislaid: Or, an Explanation of Unemployment, 1934–1941,” Journal of Political Economy 84, no. 1 (February 1976): 3.

Conservative critics of Keynes, opposing a larger role for government, charged that his views were too radical and threatened the very foundations of capitalism. Many denounced him as a socialist. Keynes, however, viewed himself as a conservative trying to defend capitalism against the growing attractions of communism. Even before the Great Depression, Keynes observed that market capitalism had imperfections that, if corrected, would strengthen it. In “The End of Laissez-Faire,” he noted aspects of the unfettered market that lead to reduced efficiency and production and suggested how governments might exercise “directive intelligence” over the problem while leaving “private initiative unhindered”: Contrariwise, devotees of Capitalism are often unduly conservative, and reject reforms in its technique, which might really strengthen and preserve it, for fear that they may prove to be first steps away from Capitalism itself. . . . For my part, I think that Capitalism, wisely managed, can probably be made more efficient for attaining economic ends than any alternative system yet in sight, but that in itself it is in many ways ex-

91

92

Public Policy tremely objectionable. Our problem is to work out a social organization which shall be efficient as possible without offending our notions of a satisfactory way of life.13

Keynes was dedicated to the preservation of the capitalist economic system and the position of those who were most favored by it. Yet his theory required some tinkering with the system by the government. The affluent were highly suspicious of any proposal that permitted government control over their interests, and they deeply resented the improved status that Keynes gave to the “working class” as an essential ingredient in the overall health of the economy (by putting their income back into the economy as demand). They found especially irritating his suggestion that their own privileges might actually contribute to economic instability (by transferring much of their income into savings). Keynes’s The General Theory of Employment, Interest, and Money, published in 1936, was a much more complex analysis of the market economy than Smith’s. Undertaking a macroeconomic analysis, with which Smith had not concerned himself, led Keynes to conclude that laissez-faire was not the appropriate policy for a stagnant economy like that of the 1930s. Keynes stated his profound disagreement with the classical tradition in his one-paragraph first chapter: I have called this book the General Theory of Employment, Interest, and Money, placing the emphasis on the prefix general. The object of such a title is to contrast the character of my arguments and conclusions with those of the classical theory of the subject . . . which dominates the economic thought, both practical and theoretical, of the governing and academic classes of this generation, as it has for a hundred years past. I shall argue that the postulates of the classical theory are applicable to a special case only and not to the general case. . . . Moreover, the characteristics of the special case assumed by the classical theory happen not to be those of the economic society in which we actually live, with the result that its teaching is misleading and disastrous if we attempt to apply it to the facts of experience.14

The classical school of economics offered no solution to the problems facing the nation during the 1930s except the optimistic view that the economic problems were temporary, requiring only belt tightening and waiting for the economy to grow. Keynes asserted that The celebrated optimism of traditional economic theory [is] to be traced, I think, to their having neglected to take account of the drag on prosperity which can be exercised by an insufficiency of effective demand. For there would obviously be a natural tendency towards the optimum employment of resources in a Society which was functioning after the manner of the classical postulates. It may well be that the classical theory represents the way in which we should like our Economy to behave. But to assume that it actually does so is to assume our difficulties away.15

Political Economy

Keynes believed that the psychological and organizational conditions of the nineteenth century that permitted laissez-faire notions to work constituted a special case that was shattered by World War I. The convoluted and contrived system depended on free import of goods and export of capital made possible by peace. It depended also on a delicate class balance between capital and labor, and a moral balance between capital and spending. In the 1920s, price instability led to the unjustified enrichment of some and the impoverishment of others, which cut the moral link between effort and reward. Worker acceptance of modest wages depended on the dominant business class producing job opportunities. A psychological balance also had developed between saving and consumption in which saving was a great virtue. Keynes noted that consumption and material outcomes constituted the measure of success—and failure. Furthermore, increasingly, capitalism’s driving force was a “vice” that Keynes called “love of money.”16 With 25 percent of the labor force unemployed, no one could any longer contend that people pushed into uncompensated unemployment were simply too lazy to get a job, or that they could find work if they would only lower their wage demands. Marxists of the day felt vindicated, believing that the Depression was the death knell of the market system. At the core of Keynes’s disagreement with the classical view was his argument that a market economy is inherently unstable. The market system could reach a position of “underemployment equilibrium” in which the economy could have a high level of unemployment and idle industrial equipment. Keynes stressed the importance of aggregate demand, or the sum of consumption, investment, government expenditures, and net exports as the immediate determinant of national income, output, and employment. Effective demand establishes the economy’s equilibrium level of actual output. A recession occurs when the equilibrium level of actual output is less than the level necessary to maintain full employment. The basic characteristic of a recession or depression is a decline in aggregate demand or purchasing power by consumers, businesses, and government. The result is an economic downturn caused by a reduction in production and the consequent increase in unemployment as employers react to reduce their costs. The significance of his theory in relation to classical theory was that it claimed the market system has no self-correcting property to return a stagnant economy to growth and full employment. If Keynes’s analysis was correct, the classical nostrum of tightening your belt and riding out the storm was disastrous. It meant that if demand was established at levels so low that unemployment would remain high and businesses would not be willing to undertake new investments, the situation would remain indefinitely in that depressed state unless some variable in the economic equation was changed. According to Keynes, political management of the economy was the solution. Gov-

93

94

Public Policy

ernment spending might well be a necessary public policy to help a depressed market economy regain its vigor. According to Keynes, to the extent that market failures lead to insufficient demand, government should intervene through fiscal and monetary policies to promote full employment, stable prices, and economic growth. Useful government action against recessions came down to fiscal and monetary measures designed to expand consumer and investment spending. This infusion of money would simultaneously improve the general social welfare by improving the position of those who are the most vulnerable in periods of economic stagnation: the unemployed. Keynes did not think the relationship between supply and demand was merely a mechanical relationship that could be easily manipulated by government or the market. He was aware that greed and fear have a profound psychological influence on individual economic decisionmaking. For example, he was conscious that when people panic (perhaps in fear over a possible job loss), they stop buying and hoard their cash. Keynes referred to this tendency as “extreme liquidity preference,” and extreme liquidity preference can cause markets to freeze as demand plummets. Conversely, investors are eager to invest their money when they feel a surge of what he called “animal spirits,” which has the effect of making economies surge. If Keynes was right in his analysis and prescriptions for curing the ills of capitalism, then the attraction of a planned economy as represented by communism would atrophy because people prefer to be employed and self-sufficient rather than dependent on the government for everything. His public policy solution was one in which business and government would act as partners in running the economy. The government would engage in public policies that would create a sufficient demand to maintain full employment. Profits would go to businesses as they had in the past. Government was the only party of this arrangement that could pull it off, however, since it alone could act in the role of a non-self-interested party. He saw government acting as a positive instrument for individual freedom by, for example, funding programs, such as education, that would help individuals as well as society, and for economic freedom by protecting a system whose entrepreneurs could flourish. Keynes maintained that economic prosperity is the only certain guarantee of a liberal political system. Keynes’s thinking was almost the opposite of Smith’s. Keynes argued disturbances in employment, output, or prices are likely to be magnified by the invisible hand of the marketplace. A catastrophe like the Great Depression is not a rare occurrence but rather a disaster that will return if the market is depended on to selfadjust. Thus, when the economy stumbles, those in authority cannot wait for an invisible hand to provide the needed adjustments. The waiting period is too long and too painful, especially for those who are the most vulnerable. Government must have policies that intervene to safeguard jobs and income.

Political Economy

Briefly, three basic policies can be enacted to increase aggregate demand to counter rising unemployment. Income tax reductions, particularly those targeted toward middle- and lower-income workers, will provide consumers with more funds to increase demand. The less affluent will place the funds immediately in the economy as demand. The more affluent insist that tax breaks for them will lead to investments and job creation. This outcome is less certain, however, as the more affluent may choose to save the money and thereby pull it out of the economy altogether. Second, the government can use monetary policy to reduce interest rates, thereby encouraging businesses to borrow for investment and consumers to borrow for investment or consumption. This second option has less certain outcomes. While low rates of interest are preferable to high rates, little incentive can be found in a recession, with unemployment rising and demand falling, for businesses with excess productive capacity to borrow money for investment purposes. Affluent individuals with substantial income from interest may also experience reduced income resulting from low interest rates. Those at lower-income levels stressed about a possible job loss are also not inclined to take on extra debt, even at low rates of interest. Finally, the government can increase aggregate demand in a weak economy by engaging in deficit spending to provide employment for those who would be otherwise unemployed. In fact, Keynes argued that cutting spending in a recession would only produce further weakness. He saw the government as the employer of last resort during the Great Depression. Creating jobs stimulated economic activity and provided increased tax receipts through the multiplier effect. The improvements in the national infrastructure in building roads, bridges, schools, and housing brought about an addition to the national wealth. In such times of economic stress, public borrowing for such expenditures can be a fiscally conservative act. Keynes’s theory was a clear advancement in the understanding of market capitalism. Part of his success was also based on the fact that he addressed not only pressing problems of the moment—economic depression and unemployment—but also enduring policy concerns like growth and stability, and like Smith before him, he developed a theory that rationalized what was already being done out of necessity. Without the Great Depression, Keynes would never have written his general theory. By the time of its publication, Roosevelt had been elected and was implementing his New Deal, which was Keynesian in practice. Roosevelt was encouraged to adopt Keynesian solutions by industrialist Marriner Stoddard Eccles, an early disciple of Keynes, and the president appointed Eccles as chairman of the Federal Reserve Board in 1934, where he served until 1951. The Great Depression exposed the disastrous result of the instability of an unregulated economy and inability of a modern market economy without wise government intervention to ensure a stable and satisfactory overall performance.17

95

96

Public Policy

One should note here that the basic changes brought about by modernization really force governments to engage in new public policies. Professor John Kenneth Galbraith has pointed out that modern industrial and urban development made unemployment a problem.18 In an earlier rural society unemployment did not exist as work could always be found on farms. But with migration from farms to cities because of industrial development, unemployment compensation became vital. Likewise, poverty was not a major issue when the poor were largely dispersed in rural areas or small coal-mining towns in Appalachia. As economic and social change made the poor more visible, they became a public concern, stirring Roosevelt to call the nation to action in his second inaugural address, stating, “I see one-third of a nation ill-housed, ill-clad, ill-nourished.” He pledged the federal government would engage in policies to ameliorate those conditions. He said the test of the nation’s progress “is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.”19 Galbraith believed that the Democrats under Roosevelt guided accommodations to the deeper trends of history during the Depression and after. Galbraith contended that, as obvious as it may seem at first to some, historical forces are in fact the primary driving force behind the expansion of government. Misunderstanding this point leads conservatives to blame liberals for making government large and intrusive. Therefore, conservatives conclude, liberal social and economic policy can be reversed, and they intend to dismantle much of the social welfare state.20

Employment and Inflation Political leaders of both parties in the United States have long held an overwhelming presumption that, in regard to election and reelection prospects, few things are more foolhardy than a tax increase or more helpful than a tax cut. The temptation to run big deficits when the economy is not in recession was reined in by Keynesian theory, which held that large deficits would result in higher inflation, requiring high interest rates to stop rising prices and bringing about a recession, which would spell disaster in elections. The perceived close connection between short-term economic trends and politics produced an arrangement that permitted deficits but kept them within a narrow range. Keynes’s analysis provided the rationale for governments to adopt public policies to keep inflation and unemployment low while encouraging economic growth. These policies were embodied in the Employment Act of 1946, which established the Council of Economic Advisors to recommend economic policies to the president to stimulate enough growth to keep unemployment low. The opposition, led by Republican senator Robert Taft of Ohio, weakened the language regarding the

Political Economy

federal government’s role in promoting full employment, production, and purchasing power. The final legislation did not define what would constitute “full employment” or acceptable levels of inflation or economic growth. However, the Full Employment and Balanced Growth Act of 1978 finally established an unemployment goal of 4 percent, an inflation rate of not more than 3 percent, and an economic growth rate of 4 percent. When the nation reaches its full employment, one might expect wide satisfaction. However, when the jobless rate falls and the nation reaches full employment, the most highly paid fear inflation will be touched off because finding idle resources and bringing them online will cost more. Inflation occurs when the economy witnesses an increase in the average prices for all goods and services, not merely an increase in the price of any specific good or service. Although inflation sounds dire, and is often made out to be so in the media, the conventional wisdom that says “inflation hurts us all” is simply not correct. Inflation redistributes income and wealth. Thus, while inflation will make some worse off, it must make others better off. Inflation acts like a tax in which money is redistributed from one group to another. For illustration, if the Organization of Petroleum Exporting Countries (OPEC) doubles the price of oil, the price of a gallon of gas will rise, making the purchaser poorer, but the extra price will be transferred to OPEC countries, making others wealthier. Since inflation is an increase in average prices, not all prices rise at the same rate. Therefore, not everyone benefits or suffers equally from inflation. However, the determination to wring inflation out of the economy by driving up interest rates and creating an economic slowdown will consistently hit some groups harder than others. Lower- and middle-income workers are much more likely to become unemployed than are the more affluent members of the labor force: Recessions are not equal opportunity disemployers. The odds of being drafted into the fight against inflation increase steadily the lower an individual’s earnings and family income are to begin with. The relative income losses suffered by the working heads of poor families, for example, are four to five times as great as the losses for those heading high-income families.21

The Uneasy Relationship Between Politics and Economics Keynes’s influence dominated thinking from the Roosevelt administration through the administration of Jimmy Carter, peaking in the 1950s and 1960s. Through Keynesian theory and skillful government management, many government officials began to speak of the possibility of doing away with economic recessions that resulted from laissez-faire economies.

97

98

Public Policy

In the early 1960s, John F. Kennedy became the first president to avowedly follow the Keynesian approach to shaping public policies. Kennedy defeated Richard Nixon during an economic slowdown at the end of the Dwight Eisenhower administration. Kennedy proposed a tax cut aimed primarily at middle- and lowerincome workers to stimulate the economy since they place almost all their earnings in the economy as demand, while the affluent take a larger share of their income out of the economy and place it in savings. The Keynesian tax cut, passed after Kennedy’s assassination, worked precisely as the model predicted in terms of increased expenditures and tax receipts. For nearly eight years during the KennedyJohnson administrations, this interventionist approach to policy was so successful in producing an uninterrupted expansion of the economy that economics was declared to be a science, and the decision to extend the Nobel Prize to include an annual award in the area of economics capped this newfound prestige. Nevertheless, in an ironic turn of events, Keynesian economics was about to suffer an erosion in confidence at the moment of its greatest triumph.

Ideology Triumphs over Policy To provide an acceptable policy doctrine, President Ronald Reagan needed an economic theory as the intellectual basis for a dramatic departure from previous practice. He put together a set of policies that included a major reduction in taxes, especially for the most affluent; a reduction in government regulation of business; and the transfer by sale of public industries into private hands. Reagan promised that these policies would result in lower inflation and a dramatically expanding economy. The theory was referred to as supply-side economics to indicate its emphasis was not on the consumers (demand side) but on the investors, financiers, and corporate managers (supply side). The “supply side” needed relief from taxes and regulations to stimulate economic activity. Reagan and his advisers reopened a debate many thought had been settled by the Great Depression when they openly proclaimed their goal to widen the gap between economic “winners” and “losers” as an incentive to work hard, save, and invest. Cynics labeled supply-side programs a return to the “trickle-down” economics of the pre-Depression era.22 Despite warnings from many economists, Reagan proceeded to push supplyside policies in the fond hope that he could cut taxes, increase spending, grow the economy, and reduce inflation by tightening the money supply at the same time.23 If his theories were correct, they would permit government to cut taxes and spend more simultaneously. For a politician this outcome was the equivalent of accomplishing the medieval alchemists’ quest to turn lead into gold. Not surprisingly, supply-side economics did not live up to its billing. In 1982–1983, the economy fell into the deepest recession since the Great Depression. Unemployment briefly reached 10.8 percent in 1982. Productivity

Political Economy

growth declined in the 1980s (to less than 2 percent per year from 3.2 percent in the 1970s). Finally, wealth and income inequality increased. By 1988 the bottom 40 percent of households paid a larger share of their income in federal taxes than they did in 1980. Increases in payroll taxes (Social Security and Medicare) more than offset a very small cut in income tax rates. On the other hand, the top 1 percent had their effective federal tax rate reduced from 34.6 percent to 29.7 percent. For all of these reasons, supply-side theories never displaced Keynesian theory among economists and political scientists.24 Since 1980, the three Republican administrations of Ronald Reagan, George H. W. Bush, and George W. Bush have emphasized the opposite of the 1930s’ solution to the economic crisis. The New Deal solution encouraged a deliberate downward redistribution of income. However, since 1980 the three Republican administrations’ solution, aggressively supported by finance capital, shifted the burden to labor and the middle class by an upward redistribution of income achieved through regressive tax policies.25 George W. Bush’s approach to bolstering the economy after his election in 2000 marked an abrupt break from Keynesian economic prescriptions. First, taxes were slashed, particularly for the most affluent, even though unemployment was just over 4 percent. The affluent took the tax windfall and placed most of it in savings. This occurred while the nation was entering costly military operations in Iraq and Afghanistan. Thus, Bush, with broad conservative Republican support in Congress, sent tax receipts on a sharply downward direction while government spending, and deficits, climbed rapidly. Bush also proposed privatizing Social Security by shifting the funds to investment firms, even though the transition would have added $1 trillion to the deficit. That proposal, which would have reduced guaranteed benefits, was thwarted by strong voter opposition. Bush’s mantra of cutting taxes, reducing the size of government, and reducing regulation of business offered enormous benefits to the rich and powerful. His “efforts to weaken the enforcement of securities laws or environmental regulations fit the same mold: they reflect[ed] a free market model while they also please[d] well-organized lobbies.”26 Russell Baker observed that “no Republican president since Roosevelt’s death has tried harder than George W. Bush to undo what Roosevelt did.”27 However, Bush was forced to end his presidency by asking for a $750 billion bailout package to save capitalism from its weaknesses. The most conservative administration since Hoover, which espoused the philosophy that government is the problem, was forced to adopt Roosevelt’s and Keynes’s solutions: government intervention to stabilize the economy. During the eight years of the Bush administration, labor and the middle class became increasingly burdened with debt. The financial crisis began in 2007 with the bursting of the housing bubble. The economy was caught in a frenzy of many debtors being squeezed to pay down their debts at the same time. Demand declined

99

100

Public Policy

precipitously as individuals slashed spending while unemployment began climbing. Ominous parallels in the financial world were trending in 2007 to the swiftness and severity of the onset of the Great Depression in 1929. However, “automatic stabilizers” installed in the 1930s cushioned the effect. Unemployment benefits and food stamps automatically increased, and Social Security checks and Medicare benefits continued unabated. The benefits of the welfare state put a floor on total spending in the economy. Chairman of the Federal Reserve, and a student of the Great Depression, Ben Bernanke slashed interest rates and made money available by buying government debt and commercial paper.28 The Obama administration pushed an $800 billion program (which only amounted to roughly 2 percent of GDP) of tax cuts and increased spending through Congress. Since the crisis was more severe than many realized, Obama was expected to ask for a second round of stimulus spending, a chance that never came because conservatives, who were unconcerned about debt during the Bush administration, now became deficit hawks. Keynesian analysis showed that a reduction of spending by the government in an already weak economy produces further weakness, but the new deficit hawks pointed to the Greek economy as an example of the dangers of excessive debt. They warned that continued deficit spending would turn the United States into another Greece. Congressman Paul Ryan (R-WI) has led the Republican Party in the charge for reduced spending, taxes, and regulation, and has been persuading the entire party to fall in line with that view. The Ryan claim is that the nation is heading toward a massive debt crisis and only his plan embedded in his 2013 budget proposal could resolve the pending implosion. Deficit hawks felt that budget reductions had to be undertaken immediately, and radical tactics, like threatening economic chaos through defaulting on the national debt, were justified because the fiscal crisis was not in the distant future but already upon the country. Two economists, Carmen Reinhart and Kenneth Rogoff, claimed that their data showed that when countries’ debt crossed a threshold of 90 percent of GDP, their economic growth stalls or even contracts, and Ryan cited the Reinhart-Rogoff study in his budget proposal as the decisive argument for austerity and spending cuts.29 Reinhart-Rogoff’s research seemed to make a compelling case for states to turn toward austerity. In Europe, Greece, Ireland, and Portugal imposed harsh spending cuts in 2010 at the behest of the European Commission and the European Central Bank. Proponents of the cuts argued that austerity measures would inspire confidence and foster economic recovery. By the fall of 2012 the International Monetary Fund carefully scrutinized data since the imposition of austerity measures and concluded that the policy of austerity had major negative economic effects. The data made clear that the “countries forced into severe austerity experienced very severe

Political Economy

downturns, and the downturns were more or less proportional to the degree of austerity.”30 The results were just about what would have been predicted from mainstream Keynesian theory: the more severe the austerity, the poorer the economic performance. Greece was the most poorly performing economy, followed by Portugal and Ireland. Furthermore, several flaws in the Reinhart-Rogoff paper were soon discovered by scholars, including coding errors, omission of several critical nations as data points, a misinterpretation of some US data, and questionable statistical weighting techniques. The authors offered no evidence that rather than high debt leading to low growth, the more plausible outcome is that low growth leads to high debt. Peer review established the fact that a 90 percent ratio of debt to GDP did not correlate with low economic growth, as the study claimed. Intellectual support for the claim that immediate austerity would stimulate economic growth vanished. To Keynesians the results were not surprising. That a country can cut its way to growth is illogical. The US economy is consumer driven, with about 70 percent of GDP determined by consumer demand. If the government reduced spending in education, health care, unemployment compensation, or defense, demand must contract, putting an upward pressure on unemployment. No evidence has been found that austerity has ever brought a market economy out of a recession. The austerity demands found in such obstructionist policies as the sequestration weakens and prolongs the painful effects of economic recovery from the recession. These cuts make it harder to grow the economy and create jobs by preventing the government from investing in important priorities like education, research, public safety, and military preparedness. We should note, as suggested earlier, many in society would prefer stagnation and unemployment to the measures that would stimulate higher economic growth, high employment, and some inflation. In fact, although the current economic policy might appear to be performing poorly by the nonwealthy, it appears to be more successful for the wealthy. Profits have recovered strongly even as long-term unemployment persists, higher wage demands have been almost nonexistent, and workers are willing to work longer hours to show their eagerness for continued employment. Stock prices have rebounded to new highs. Despite evidence to the contrary, the Republican Party’s continued insistence that the deficits will cause the economy to collapse has driven their resistance to compromise. Keynesian analysis regarding policies to wisely manage the macroeconomic variables, to provide a strong and stable economy and the opportunities it provides to reduce poverty and social disorder, has been validated in policy decisions many times. Conversely, challenges to the theory, when applied as policy, have fallen short, as the examples above indicate. It is, nevertheless, still challenged by those whose self-interest is better served by different ideologies.

101

102

Public Policy

Conclusion The father of modern economics, Adam Smith, tried to free the capitalist market system from the inefficiencies associated with mercantilism in which government provided protection for and control over business. His theory promoted an economic model that claims full employment of workers and capital can be maintained without any government intervention as long as monopolies do not form, and income is not distributed in a highly unequal manner. His sympathies were decidedly on the side of the workers and against business owners. He theorized that deviations from the ideal of full employment should self-adjust as if by an invisible hand, thus eliminating the need for government involvement. Smith’s sympathies and his warnings regarding conditions that would deform his model were largely ignored, while his views in support of laissez-faire economics were accepted enthusiastically by entrepreneurs. Karl Marx accepted many of Smith’s basic premises regarding capitalism but seized on the problems of monopolies and the inequality exacerbated by them. Marx saw threats to the capitalist system everywhere, leading to an abuse of the working class and, eventually, a failure of the system itself. John Maynard Keynes’s defense of capitalism against Marxism revolutionized economic theory through several adjustments to Smith’s theory. For example, Keynes’s analysis shifted to a macroeconomic rather than a microeconomic perspective. He also held that market economies are inherently unstable and have no self-correcting properties. According to Keynes, government may be the only institution capable of intervening in the economy to create the demand necessary to maintain full employment. His analysis showed the economy to be much more complex than anything suggested by the classical school. He concluded that the government may successfully intervene in several different areas of monetary and fiscal policy, and these interventions may also be geared to achieve social goals of the society other than those that are purely economic in nature. John Maynard Keynes proposed a theory that provided governments with a framework for economic policy: the use of monetary and fiscal policy to maintain a stable economy while creating the conditions that will lead to full employment. The very survival of a capitalist economy in the United States may well be due to the relief from some of its harshest failures (poverty, unemployment, alienation, and income insecurity) by the Keynesian welfare state. The welfare state may enhance social justice and ensure the survival of a capitalist economy. Government expenditures, both national and state, now account for close to 30 percent of GDP in the United States. The recession beginning in December 2007, often called the Great Recession, has refocused attention on the theories of the classical school and the Keynesian school and their supporting arguments. The reaction to the crisis makes clear that

Political Economy

laissez-faire economics and self-regulation cannot be sustained economically or politically. How the crisis will be solved has not yet been determined. Keynes, like Smith, was clearly too optimistic in his economic views. He assumed that a better understanding of the relationship between economic variables would permit government to enter the market system to maximize social welfare. He implicitly accepted the notion that government would be neutral and benign and would intervene only to increase demand and provide employment, thus increasing output and improving income distribution. He assumed that an understanding of the shortcomings of market economics would lead to agreement about solutions. But he seems to have misjudged the degree to which governments are penetrated by self-interested groups who lobby for their own special interests rather than the general welfare of society. The triumph of the ideology that “governments should deregulate the economy” and that “government is not the solution, government is the problem” represented a political victory for dominant financial elites, not a victory of economic analysis. However, the heads of the leading financial institutions were the first to approach government in deep distress demanding bailouts. While they were willing under the circumstances to accept some oversight as inevitable, they recommended that government should not reregulate business. Political actors may share the same goal of a growing economy, full employment, and price stability, but they often have different priorities, and, in fact, politicians, almost without exception, consider winning the next election their first priority. Therefore, they will be more concerned with the need to raise money and win votes than with economic theory. Politicians are notoriously reluctant to raise taxes on potential campaign contributors. They are also reluctant to cut spending to control inflation. For example, the trade-offs relative to a political actor’s main constituents will influence whether fighting inflation or fighting unemployment will receive priority. The politics of economic policy may actually reward politicians for behaving irresponsibly and punish responsible economic policy. For example, tax hikes rarely win votes, and despite the fact that tax increases on the wealthiest US residents had an overall effect in reducing the deficit in 1991–1992,31 Democrats lost control of Congress as a direct result of that policy.

Notes 1. See Stanley L. Brue, The Evolution of Economic Thought, 5th ed. (New York: Dryden Press, 1994). See especially chap. 5, “The Classical School—Adam Smith,” pp. 69–85. 2. Ibid., p. 74. 3. Ibid., p. 78. 4. Karl Marx and Friedrich Engels, The Communist Manifesto, ed. Samuel Beer (New York: Appleton-Century Crofts, 1955), p. 9.

103

104

Public Policy 5. Ibid., p. 12. 6. The US Business Cycle Dating Committee established August 1929 as the beginning of the Great Depression, coinciding with a decline in industrial production. 7. As quoted in Russell Baker, “A Revolutionary President,” New York Review of Books, February 12, 2009, p. 6. 8. “The Roosevelt Week,” Time, September 28, 1936, p. 11 (emphasis added). The name of his program, “A New Deal,” was taken from the title of a book that had caused something of a stir when it was published a few months earlier. See Stuart Chase, A New Deal (New York: Macmillan, 1932). Chase made reference to some of Keynes’s earlier writings and generally provided an assessment of the nation’s economic problems and proposed various progressive government policies to deal with the issues. 9. Baker, “A Revolutionary President,” p. 6. 10. Arthur Schlesinger Jr., “The Hundred Days of FDR,” New York Times, April 10, 1983, p. 1. 11. Farshad Araghi, “Political Economy of the Financial Crisis: A World-Historical Perspective,” Economic and Political Weekly, November 8, 2008, p. 30. 12. Keynesian analysis is made up of far more than the few points made here. In addition to Keynes’s own General Theory of Employment, Interest, and Money (New York: Harcourt, Brace, and World, 1936), recommended for further reading is G. C. Harcourt, ed., Keynes and His Contemporaries (New York: St. Martin’s, 1985). 13. John Maynard Keynes, “The End of Laissez-Faire,” in Essays in Persuasion (New York: W. W. Norton, 1963), p. 321 (emphasis added). 14. Keynes, General Theory, p. 3 (emphasis added). 15. Ibid., pp. 33–34 (emphasis added). 16. Robert J. Skidelsky, Maynard Keynes: The Economist as Saviour, 1920–1937 (New York: Viking Penguin, 1992), esp. chap. 7, “Keynes’ Middle Way.” 17. John Kenneth Galbraith, The Good Society: The Human Agenda (New York: Houghton Mifflin), p. 19. 18. Galbraith, The Good Society, p. 10. 19. Franklin Delano Roosevelt, Second Inaugural Address, January 20, 1936. 20. See Galbraith, The Good Society, chap. 2. 21. Isabel V. Sawhill and Charles F. Stone, “The Economy: The Key to Success,” in Isabel V. Sawhill and John Palmer, ed., The Reagan Record: An Assessment of America’s Changing Domestic Priorities (Cambridge, MA: Ballinger, 1984), p. 80. 22. See, especially, Paul Krugman, Peddling Prosperity: Economic Sense and Nonsense in the Age of Diminished Expectations (New York: W. W. Norton, 1994). 23. Three Nobel Prize–winning economists, James Buchanan, Milton Friedman, and George Stigler, all with impeccable conservative credentials, scorned supply-side thinking. 24. John Miller, “Ronald Reagan’s Legacy: His Destructive Economic Policies Do Not Deserve the Press’ Praise,” Dollars and Sense: Real World Economics, July/August 2004, http://www.dollarsandsense.org/archives/2004/0704miller.html. 25. Araghi, “Political Economy of the Financial Crisis,” p. 35. 26. Jonathan Chait, The Big Con: The True Story of How Washington Got Hoodwinked by Crackpot Economics (New York: Houghton Mifflin, 2007), p. 63. 27. Ibid., p. 6. 28. Commercial paper consists of short-term (not exceeding 270 days) promissory notes by businesses to make up for shortfalls to meet obligations such as payroll. 29. Establishing the Budget for the United States Govt. for Fiscal Year 2012 and Setting

Political Economy Forth Appropriate Budgetary Levels for Fiscal Years 2013 Through 2021, H.R. Con. Res. 34, 112th Cong, 1st Session (April 11, 2011). In the hearing, Paul Ryan (R-WI) states the following: “Essentially, the study confirmed that the massive debts of the kind the nation is on track to accumulate are associated with stagflation—a toxic mix of economic stagnation and rising inflation.” 30. Paul Krugman, “How the Case for Austerity Has Crumbled,” New York Review of Books, June 6, 2013, http://www.nybooks.com/articles/archives/2013/jun/06/how-case-austerity -has-crumbled/?pagination=false&printpage=true. 31. Patrick Fisher, “1993 Budget Reconciliation Bill and the Federal Budget Deficit,” in Jack Rabin, Encyclopedia of Public Administration and Public Policy, Vol. 2 (CRC Press Publishing Company, 2003, www.crcpress.com), pp. 825–829.

105

5 Funding Public Policy: From Theory to Practice

In the previous chapter we discussed the government’s economic policy to steer the economy toward full employment in periods when the market failed to do so on its own. Marxists thought that capitalism would inevitably collapse from its own internal contradictions. John Maynard Keynes provided a new analysis of capitalism that recognized its shortcomings but provided the intellectual framework to repair capitalism’s technical problems to make it the most productive economic system ever devised. Essentially the tools of monetary and fiscal policy provided by Keynesian theory could be used to intervene in periods of economic stress to manage capitalism back to full employment. The use of budget deficits to provide stimulus was designed to provide short-run stabilization through the troughs of business cycles. Automatic stabilizers were policies designed to cut taxes or increase government spending during economic downturns to offset the decline in consumer demand. Fiscal policy actually refers to two governmental actions. The first involves the government’s plans to levy taxes, which is a transfer of assets from the people to the government. Tax policy may be used to pursue various goals simultaneously. For example, its most basic use is to achieve macroeconomic goals of expanding the economy and employment. Taxes may be used as an economic policy to provide income security, to increase investment spending, and to stimulate aggregate spending. The second action involves how the government spends the revenues it receives in taxes. Government spending may take the form of Social Security benefits, building and maintaining roads and bridges, wages for military and civilian government employees, or unemployment compensation. This aspect of fiscal policy deals with the individual, while the secondary effects may also have an impact 107

108

Public Policy

on the economy at large. Since assets flow in opposite directions in taxing and spending, one can consider them as requiring separate policy decisions. All government taxing and spending has implications for the federal budget deficit and therefore is constantly present in the public policy debate. Prior to the 1930s most citizens accepted the classical view that claimed that a market slump and rising unemployment were self-correcting, and therefore full employment would return without government involvement, given sufficient time. The financial elite devoutly accepted that view as, and tended to think of unemployment as, the market’s self-correction from the excesses of the period preceding the slump. The pain of a recession was necessary to cleanse the system and bring discipline back to the market. Secretary of the Treasury Andrew Mellon advised Herbert Hoover to let the Depression run its course to “purge the rottenness” from the system. Mellon’s counsel was standard, although bad, economic advice in the 1920s. However, despite major advances in the knowledge of macroeconomic policy, the same advice still has appeal in some quarters today. For example, presidential candidate Mitt Romney urged the Barack Obama administration not to “stop the [housing] foreclosure process” and not to bail out the auto industry but let the market system run its course.1 Creditors, whether during the Great Depression or today, benefit from this approach, since if the government does not intervene, they can demand repayment in full. However, if the government intervenes and provides low rates of interest and inflation to help debtors pay off their loan with devalued currency, creditors feel shortchanged. The Great Depression shattered such complacent beliefs for the struggling worker. Even so, in the 1930s, the New Deal was considered very radical. Franklin D. Roosevelt rallied middle- and working-class workers to his reforms as he railed against the “plutocrats” who opposed him on the eve of the 1936 election: They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob. Never before in all our history have these forces been so united against one candidate as they stand today. They are unanimous in their hate for me—and I welcome their hatred.2

In truth, the plutocrats had good reason for their hatred of Roosevelt. He had raised taxes on the wealthy and their corporations, encouraged the growth of unions, and reduced income inequality from the 1920s. After World War II, raising taxes on the wealthy, providing unemployment insurance, providing Social Security, and supporting worker unionization clearly had not been disastrous for the economy, as Roosevelt’s critics had predicted.3 The success of the federal government in organizing the huge mobilization of national resources to wage a global war also made the argument difficult to support that government could not do anything well. Republicans regained control of Congress in 1946 and opposed institutions of the New Deal as “socialistic.” Emboldened by passing the

Funding Public Policy

109

Taft-Hartley Act, more formally known as the Labor Management Relations Act, which significantly weakened the protections for labor in the National Labor Relations Act of 1935, conservatives ridiculed President Harry Truman and predicted a Republican victory in the 1948 presidential election. Truman won by campaigning against the “do-nothing” Republican Congress while defending the New Deal. Conservatives were forced to accept the notion that an active role for government had become respectable for a majority of voters.4 When Republicans did regain the White House with Dwight Eisenhower in 1952, most party leaders accepted the general contours of the New Deal as an enduring part of the political landscape.5 The crisis of the Great Depression made the New Deal possible, and the success of the New Deal challenged the accepted wisdom that government cannot do anything successfully and should remain on the sidelines. The New Deal began to shift national priorities away from “common defense” and toward promoting “the general welfare.” This change in the public philosophy regarding the nature and purpose of government spending is the most profound transformation in public policy in the past century (see Figure 5.1).

Figure 5.1 Government Spending by Function, 1955 and 2015 1955

2015

Source: US Office of Management and Budget, “Fiscal Year 2014 Historical Tables Budget of the US Government,” 2013, http://www.whitehouse.gov/sites/default/files/omb/budget/fy2014/assets/hist.pdf, accessed March 21, 2014.

110

Public Policy

These governmental programs started in the 1930s are labeled collectively as “human resources” in the federal budget but generally referred to as social welfare programs in which governments and frequently nongovernmental organizations provide a minimum level of income for marginalized groups such as the poor or elderly. Social welfare payments are usually provided at taxpayer expense or by private charitable organizations. In practice, the distinction between social welfare and social insurance is often blurred. Social insurance refers to government programs with several common characteristics. The government transfers risks to a program in which the government becomes legally required to provide relief for individuals or groups against adverse situations or events. Individuals may be required to participate by paying into an insurance program such as Social Security, Medicare, unemployment insurance, or workers’ compensation. Eligibility requirements are usually defined by statute. Eligibility for benefits is typically not means tested; that is, it is not dependent on the level of a person’s income or assets. Such programs are usually a response to market failures but may also occur when changes in the market result in outcomes that are deemed unacceptable to societal values.

Taxes as a Policy Instrument If unregulated markets generated full employment, price stability, economic growth, and an equitable distribution of income, as classical economic theory suggests, government intervention would not be needed. However, markets do fail and governments are called on to step in. Does government intervention accomplish its goal of economic growth and reduced unemployment and inflation? If not, government intervention also fails. In the real world, of course, nothing is perfect, so the real choice is between imperfect markets and imperfect policy interventions. The separation of powers fragments the responsibility for economic policy and weakens the government’s ability to control the economy. While the president is by far the single most important player in economic policy, the executive branch’s ability to control events or policy is often overestimated. Taxing and spending is largely determined by the performance of the economy at the time that the budget is introduced to Congress and the forecast during the period the budget moves through Congress. Much of the budget includes programs over which a president has little control, such as debt refinancing and various entitlement programs. Policymakers do not prefer high unemployment to full employment, inflation to price stability, or economic recessions to economic growth, but political entrepreneurs have limited windows of opportunity and may not find it in their interest to take the action required to reduce inflation or to get a vigorous economic expansion under way. They may agree with the notion that there is no free lunch, but they are also aware that the bill for the lunch may be deferred. Elected officials prefer

Funding Public Policy

policies that provide short-term benefits before election day and bills that will not come due until after voters have cast their retrospective ballots. Thus, in the US political process, a bias can be found in favor of policies with short-term benefits and long-term costs. This fact has profound implications for the conduct of longterm economic growth and stabilization policies as opposed to near-term policies. The collapse of the housing bubble in 2008 and the resulting financial meltdown have required the government to spend more money, but the string of massive federal deficits in recent years has alarmed many politicians. A conspicuous solution to increased spending needs and huge deficits is large tax increases. However, such increases would cause pain to taxpayers and threaten a further reduction in consumer demand that could lead to greater unemployment long before a reduction in the deficit would reduce inflation or free up new government monies. In this case, the political “bads” arrive rather promptly while the “goods” would likely arrive much later and be felt only gradually. For example, George W. Bush campaigned in 2000 and 2004 on the platform of cutting taxes. However, with Republicans in control of both houses of Congress and the presidency, one could find considerable opposition to cutting expenditures even within the president’s own party. Political entrepreneurs thus have a bias toward expansionary fiscal and monetary policies, since lower taxes and increased expenditures for special interest groups provide strong support for an incumbent’s bid for reelection. Policies to reduce spending and increase taxes cause unrest among voters. Even though the optimal policy often requires long-term strategies, the political incentives for incumbents may not reflect the long-term economic interests of the nation. Political entrepreneurs find continuing unpleasant policies extremely difficult since the exigencies of elections threaten their futures. The idea of monetary policy was not entirely new in the 1930s, but the use of taxes and national budgets as management tools of economic policy to counter economic cycles of boom and bust was new. Although the government borrows money to finance its operations, taxes collected from a variety of sources are the main reservoir of government expenditures. Through its ability to adjust taxes, especially income taxes, the government can guide the economy and pay for goods and services. But the question of who pays is inextricably linked to several other questions regarding tax policy. What is a fair distribution of income? What are the major issues involved in deciding who should bear the burden of taxes? What do political scientists and policy analysts take into consideration when they talk about a fair tax system? Does the US tax system meet the criteria for fairness while promoting the general welfare? Government intervention is a conscious decision not to leave the provision of certain goods or services to the marketplace. It is a determination that political, not economic, considerations will prescribe which services the government will pro-

111

112

Public Policy

vide. Taxes are required to finance these goods and services. Therefore, the main purpose of taxation is to move purchasing power from the private to the public sector. Awareness of the distributional consequences of shifting purchasing power to the public sector is essential in judging the consequences of the policies. Antitax sentiment has always run high in the United States. Recall that the American Revolution began as a tax revolt. The colonists objected to the taxes levied on tea and dumped the tea into Boston Harbor. After the adoption of the Constitution, the government relied primarily on customs duties to fund the limited national budget. Congress enacted an income tax during the Civil War, but it expired at the war’s end. In 1894, Congress passed another income tax bill that was declared unconstitutional by the Supreme Court in 1895. Finally in 1916, the Sixteenth Amendment to the Constitution was ratified, which gave Congress the power “to lay and collect taxes on incomes from whatever source derived.”

The Antitax Campaign The national debt, which is the accumulation of annual deficits, is financed by the government’s selling Treasury securities on the market. Deficit financing during recessions to fund education, energy alternatives, technology, and many other programs is an investment by the government that provides the basis for economic growth. Those who oppose running deficits to increase demand and nudge the economy toward full employment follow two main lines of argument. First, they claim that “common sense” demands that the government should not spend more money than it receives in revenues. Though in so doing, they ignore economic theories to the contrary. Second, they argue, running a deficit today unfairly burdens future generations. As noted previously, Republican devotion to balanced budgets was nowhere to be found during the administration of George W. Bush, who inherited budget surpluses from the administration of Bill Clinton only to slash taxes, creating a structural deficit when the economy was at full employment. A structural deficit occurs when the government runs a budget deficit at full employment of the labor force, when tax revenues would be at their maximum. When, in a cabinet meeting, Paul O’Neill, secretary of the treasury, cautioned that Bush’s $1.35 trillion tax cut would increase the deficit, Vice President Dick Cheney remarked, “Reagan proved deficits don’t matter,” and “We won the [2002] midterms. This is our due.”6 After taking office, President Obama proposed letting the Bush era tax cuts that favored the wealthy expire in 2010 as the most obvious way to reduce the deficit. Alan Greenspan, former chairman of the Federal Reserve and an early advocate of the tax cuts, said he was in favor of tax cuts “but not with borrowed money,” indicating he favored letting the Bush tax cuts expire.7 Senate

Funding Public Policy

Republicans refused to extend unemployment benefits to millions of unemployed workers unless Democrats agreed to extend all the tax cuts, adding almost $4 trillion to the debt over ten years.8 One cannot escape the conclusion that the conservative antitax position has to do with the context of whether Republicans or Democrats are in charge, and whether the deficits will benefit the affluent or the more vulnerable members of society, acting as a reminder of the effectiveness of making the government the target as a campaign issue. The conservative struggle against taxes and the deficit and debt is actually a subterfuge for the conservative concern about the proper role of government and public policy in the United States today. Conservative activist Grover Norquist, well known in Republican circles for his desire to shrink government “down to the size where we can drown it in the bathtub,” works to achieve that goal by holding weekly meetings with conservative think tanks, Republican congressional leaders, and conservative lobbyists. He has been very open about legislative goals to make unions’ funding of Democratic candidates more difficult, while promoting freetrade policies that would weaken the influence of unions.9 Norquist criticizes attempts to negotiate partisan differences to reach accommodation, stating that “bipartisanship is another word for date rape.”10 The animosity toward government as a rallying cry is a curiosity for a group who consider themselves to be otherwise loyal. Some of the Founders of the Constitution wanted to form a “more perfect Union” (i.e., a stronger union). By pledging themselves mutually to the enterprise of a republican form of government, they trusted that mutual benefits of the government would enhance their freedom. Modern-day conservatives, however, believe that a government can grow only at the expense of individual freedom. As Garry Wills points out, people’s resentment of what they have themselves brought about makes no sense.11 When government shows some imperfection or inefficiency, it is rejected as having no positive qualities. This position is invariably based on an alarmist George Orwell, 1984 scenario of a government trying to seize control through deception and stealth. To expect nothing positive from government may be a US tradition, but Wills says such a tradition belittles the United States, asking citizens to love the country by hating the government.12 It turns the Founding Fathers into fools, glamorizes frontier settlers but demeans what they settled, and requires citizens to disdain the people they democratically elected. He concludes that the country, the Founders, the elected representatives, and the citizens themselves deserve better. GOP presidential candidate Rick Santorum referred to unemployment insurance and food stamps as “the narcotic of dependency,” by which the government seduces people to surrender their independence and freedom. Needless to say, no authoritarian government has ever come to power by providing citizens with social

113

114

Public Policy

welfare benefits. Rather, authoritarian governments always begin by limiting civil and political rights, such as limiting voting rights. These conservatives overlook the fact that government support of individual social welfare by providing health care, raising the minimum wage, or providing Social Security enhances individual freedom. An individual in abject poverty is less free than an individual of adequate means. They also ignore the fact that when government regulates or penalizes certain behaviors, its purpose is to promote the welfare of society as a whole. Practically everyone would agree that government is needed to enforce laws that prohibit assaults, rape, and murder, regulate pollution, or enforce contracts. Without an enforceable system of business law, capitalism in the United States would be far less robust. Revenue must be brought in to give the government the means to fulfill these goals. In Figure 5.2, taxes from all levels of government are expressed as a percentage of the gross domestic product (GDP), or output, of each country represented in that figure. This ratio is the best measure of relative taxation because it includes not only the tax burden but also an indication of the ability to pay the taxes levied. The Organisation for Economic Co-operation and Development (OECD) found that, of thirty-four countries examined (mostly Western, industrialized nations), only Mexico and Chile collected a smaller share of revenues as a percentage of GDP than the United States.13 Figure 5.2 contradicts the widely held view among many in Congress that taxes in the United States are so high that any efforts to reduce the federal deficit should only take the form of cuts in government spending. Even though US residents are among the least-taxed people in the industrialized world, aversion to taxes runs high, and politicians are usually rewarded for a vigorous and righteous defense of constituents against rapacious tax collectors. This attitude is often accompanied by an indignant opposition to any increase in social welfare spending, since any reason for increased public expenditures would entail higher taxes. The reality is that when compared to most developed nations, the United States is a tax haven.

Federal Taxes Paid vs. Benefits Received by States The federal government depends primarily on the individual income taxes sent by taxpayers to Washington each year. The states receive federal spending by the national government in return. However, some states receive more in federal spending than they pay in federal taxes, making them net beneficiaries, or “takers.” On the other hand, some states receive less spending back from the federal government than they send in, making them net donors or “givers” (see Figure 5.3). The most important indicator regarding whether a state is a net giver or taker is percapita income. Because of the progressive structure of the federal income tax,

Funding Public Policy

115

Figure 5.2 OECD Countries’ 2010 Taxes as Percentage of GDP (includes federal, state, and local taxes in all countries)

Source: “The U.S. Continues to be One of the Least Taxed of the Developed Countries,” Fact Sheet, Citizens for Tax Justice, April 8, 2013, http://ctj.org/ctjreports/2013/04/the_us_continues_to_be_one_of_the_least_taxed_of_the _developed_countries.php#.UemtDuBwYQi.

states with higher per-capita incomes pay higher taxes to the national government. Other categories of federal taxes, including business, social insurance, excise, estate, and gift taxes as well as customs duties are all tabulated to determine the total tax burden for each state. That figure is compared to the flow of federal funds back to the state. Other factors include the influence of the state’s congressional delegation, the number of federal employees within the state, and the percentage of residents receiving Social Security, Medicare, or other federal entitlements. In

116

Public Policy

2010, the most recent year with data available, just twenty of the fifty states were net givers, and thirty states were net takers. Several states were closely balanced between their donations and their benefit received. Ironically, most of the low-paying states are the more conservative “red” states that usually support policies such as lower taxes and smaller government and oppose using the tax system to redistribute wealth, yet they are the major beneficiaries, receiving far more federal dollars back than they send in. By comparison, most donor states are more affluent “blue” states that generally support more progressive policies. Residents in the states of New Mexico, Mississippi, West Virginia, Montana, and Alabama live in a paradox as they received almost $2 back for every dollar they paid in taxes. To be sure, not all red states are takers, and not all

Figure 5.3 Benefits Received by the States for Every Dollar Paid in Federal Taxes

Source: Brian Beutler, “Red States Use the Safety Net Too,” Talking Points Memo, February 22, 2012, http://tpmdc .talkingpointsmemo.com/2012/02/the-map-that-proves-red-staters-use-the-safety-net-too.php.

Funding Public Policy

blue states are “givers.” Nevertheless, in 2010, residents of the ten states ranked as “most conservative” received 21.2 percent of their income in government transfers, while the amount for the ten most liberal states was 17.1 percent.14 Dean P. Lacey has shown that support for antigovernment Republican candidates has grown since 1980 in states where the federal government spends more than it receives. The greater their dependence on the federal government, the greater their support for Republican candidates.15 Conversely, states that pay more in taxes than they receive in benefits are more inclined to support Democratic candidates. Federal money spent in states is responsible for many programs ranging from Medicaid and Medicare, medical research, disaster relief, and wages for federal employees to Department of Defense and other government contracts. Across the nation, federal money to states rose from an average of $1.25 per tax dollar paid in 2007 to $1.75 in 2009, an increase of 40 percent and the direct result of the recession causing reduced tax receipts and more social welfare payments flowing to the states.16 Research by Suzanne Mettler suggested a lack of understanding about what social programs entail would appear to lead people in red states to vote against their own self-interest. A survey of 1,400 individuals by the Cornell Survey Research Institute discovered that when people were asked whether they had “ever used a government social program,” 57 percent said they had not. However, when asked if they had taken advantage of a list of twenty-one federal programs that included Social Security, unemployment insurance, student loans, Medicare, food stamps, and the home mortgage interest deduction, 94 percent of those who had previously denied using government social programs conceded they had benefited from at least one program. The average respondent indicated he or she had used four.17 Mettler concluded that citizens often fail to recognize government’s role in society, even when they have personally benefited from various programs because so much of what the government does is largely invisible. Individuals’ perceptions are influenced by their political views. For example, respondents to the survey who identified themselves as “extremely liberal” were twenty percentage points more likely to acknowledge using a government program than someone who selfidentified as “extremely conservative” but used the same number of programs.18 The design of many social welfare policies also influences the recipient’s awareness. Programs that require individuals to interact with officials frequently or with intensity to establish that they qualify for benefits like food stamps, subsidized housing, or disability payments clearly establish that a government benefit is being sought. Eligibility for other government programs like Medicare and Social Security retirement benefits tend to have fewer standardized requirements. Social Security checks are sent directly from the government, making it clear that it is a government social program, but 44 percent of those receiving Social Security payments initially claimed that they “have not used a government social program.”

117

118

Public Policy

Mettler stated that the denial is understandable since individuals have funds deducted directly from their paychecks to help finance the program. Thus many conclude that Social Security and Medicare are not true government benefits since they pay for them with every paycheck, but most people will receive more benefits from Social Security and Medicare than they have ever contributed to the program, and that fact leads to long-term funding concerns with both programs. Franklin D. Roosevelt actually insisted that funds be deducted from paychecks precisely so people would understand they had a “legal, moral, and political right” to their benefits. “With those taxes in there,” he said, “no damn politician can ever scrap my social security program.”19 Mettler referred to a final group of policies that she called the “submerged state.” These benefits are largely invisible because they are channeled through the tax code so taxpayers tend to think of them as “giveaways.” Two of the most common programs that fit this category are the home mortgage interest deduction and

Case Study Tax Expenditures A tax expenditure is defined as the reduction in tax revenue that results when government programs or benefits are provided through the tax system rather than reported as budgetary expenditures. The expenditures are grouped into four categories: exclusions from taxable income, itemized deductions, preferential tax rates, and tax credits. Provisions of the law providing tax expenditures are generally designed to advance social policy objectives. Tax expenditures for health insurance costs, pension contributions, and mortgage interest deductions, for example, are intended to promote a healthier population, encourage adequate savings for retirement, and provide a more stable community of homeowners. However, many tax expenditures do not further societal goals. The federal government “spends” hundreds of billions of dollars on tax expenditures each year. The largest tax expenditure— the exclusion for employer pension plan contributions and earnings (see Table 5.1)—is also the fastest growing. The main reason that

the government reports tax expenditures is to improve accountability by providing a more complete picture of its spending and to give the “submerged” benefits more visibility. Governments use the tax system to deliver programs to reduce their own administrative costs and reduce compliance costs for recipients, but tax expenditures have several negative aspects. Their overall cost receives less public scrutiny than is the case for spending programs because they do not need to be formally approved every year. The benefits of the major tax expenditures tend to go to highincome earners to an even greater degree than do entitlements, an outcome that can run counter to the objective of incorporating progressiveness into the tax system. Tax expenditures are big and automatic, and costs are often hard to control since many of the benefits tend to be more open ended, and enforcement is often more difficult than for spending programs since Congress does not have to appropriate funds in the budget for benefits written into the tax code.

Funding Public Policy

119

Table 5.1 Major Tax Expenditures, 2013 Cost to Treasury Billions of Dollars Exclusions from taxable income Employer-sponsored health insurancea Net pension contributions and earningsa Capital gains on assets transferred at death A portion of Social Security and railroad retirement benefits Deductions State and local taxes Mortgage interest Charitable contributions Preferential tax rates Capital gains and dividends Credits Earned income tax creditb Child tax creditb

Percentage of GDP

248 137 43

1.5 0.9 0.3

33

0.2

77 70 39

0.5 0.4 0.2

161

1.0

61 57

0.4 0.4

Source: Congressional Budget Office, Budgetary Effects of Selected Major Tax Expenditures, Fiscal Years 2013 to 2023 (Washington, DC: US Government Printing Office, May 2013), p. 6. Notes: a. Includes effect on payroll taxes. b. Includes effect on outlays.

the exemption from taxes for employer-provided health and retirement benefits.20 Hidden policies result in beneficiaries not recognizing them as benefits and mistakenly thinking their economic security was due only to their own efforts. More visible policies resulted in people agreeing that the government provided them with opportunities to improve their standard of living. Submerged state policy benefits obscure the role of the government and exaggerate the role of the market. The health care tax break provided to employer-provided insurance is far greater than the cost of the entire Affordable Care Act. But this tax benefit is “submerged” and largely uncontroversial while subsidies to help those who cannot afford health insurance are very controversial. The stipulation in the new health care reform law that W-2 forms must indicate the value of untaxed, employerprovided health care benefits, Mettler concluded, is a step in the right direction. Mettler believed the government should also provide “receipts” that inform people of the amount of each benefit they receive through tax policy. When citizens are unaware of the source of beneficial programs, they cannot form meaningful opinions about them. If citizens who assume that government has never helped them are made aware of how it has, it can help defuse the polarized political climate.21

120

Public Policy

Who Pays Taxes in the United States? In any discussion about taxes, the claim is often made that many US residents with low income do not pay any taxes while the richest pay a disproportionate share of all taxes. This view is widespread and showed up in the policy differences between the two parties’ candidates during the 2012 presidential race. The GOP presidential candidate Mitt Romney in a meeting with campaign donors said, of the 47 percent who were likely to vote for Obama, “not to worry about those people.” He continued, “These [are] people who pay no income tax but are dependent upon government, who believe they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it.”22 Romney categorized them as a taker class and, along with another presidential candidate, Rick Perry, expressed concern that the United States was close to being a society with more “takers” than “makers.” The implication was that this statistic provided clear evidence of a welfare state run amok, and changes were needed to take the country in a different direction. Table 5.2 attempts to put the numbers in context. The table indicates that the tax system is barely progressive even after taxes were raised in January 2013 for the wealthiest US earners. Those who claim that the rich pay a disproportionate share of taxes refer only to the federal income tax and ignore the payroll taxes, excise taxes, and state and local taxes, which are regressive. Regressive taxes take a larger share of income from middle- and lowerincome households than they take from the rich.

Table 5.2 Income and Taxes, 2013 Taxes as a Percentage of Income Avg. Cash Total Income (dollars) Lowest 20% Second 20% Middle 20% Fourth 20% Next 10% Next 5% Next 4% Top 1% All Bottom 99%

13,500 27,200 43,600 71,600 109,000 154,000 268,000 1,462,000 75,100 61,100

Total Income (percent)

Federal Taxes (percent)

3.3 6.9 11.2 18.4 14.0 10.1 14.3 21.9 100.0 78.2

2.1 5.1 9.9 18.2 14.6 10.7 15.3 24.0 100.0 75.9

State and Total Taxes Local Taxes Taxes (percent) (percent) (percent) 6.4 10.9 15.4 18.8 20.4 21.4 22.0 24.3 19.7 18.3

12.4 11.6 11.2 11.0 11.0 10.6 10.2 8.7 10.5 11.0

18.8 22.5 26.6 29.8 31.4 32.0 32.2 33.0 30.1 29.2

Source: Citizens for Tax Justice Reports, “Who Pays Taxes in America in 2013?” April 1, 2013, http://ctj.org /ctjreports/2013/04/who_pays_taxes_in_america_in_2013.php#.UemtiOBwYQl.

Funding Public Policy

In fact, the table indicates that the US tax system approximates a flat tax when all taxes are included. For example, the poorest 20 percent receive 3.3 percent of the income and pay 2.1 percent of the taxes. The richest 1 percent pay 24 percent of the total taxes while they receive 21.9 percent of the total income. The effective tax rate for the richest 1 percent is 33 percent compared to 26.6 percent for those in the middle fifth. Many high-income people can game the system to significantly reduce their tax obligations. For example, Mitt Romney reported paying 13.9 percent of his income in federal income taxes, while the bottom 20 percent of families paid a higher rate of 18.8 percent and the next 20 percent paid 22.5 percent of their income in taxes (although they may have paid no federal income tax). Worth pointing out is that many low-income workers pay no federal income tax because a couple with two children earning about $25,000 per year working for a low-wage employer such as Walmart or McDonald’s, with a standard deduction of $11,600 plus four exemptions of $3,700, would bring their federal income tax liability to zero. A millionaire with the same exemptions and deductions would also have zero tax liability on the first $25,000, though the first $25,000 would be only a very small portion of the millionaire’s total income.

Types of Taxation in the United States Federal, state, and local governments get their revenue to finance programs from a variety of tax sources. While the federal government relies primarily on individual income taxes, state and local governments receive most of their revenue from taxes on wealth and consumption. Figure 5.4 presents a breakdown of the sources of revenue for the national government in 2014. Total tax receipts are projected to be $3 trillion, while the government expects to borrow $616 billion.23 The largest single source of revenue is the personal income tax followed by social insurance taxes or payroll taxes, like those pulled out for Social Security and Medicare, and, after all those, the corporate income tax. Taxes on Individual Income

The individual income tax is, as the name suggests, paid by individuals on income received during the year. This income includes that from work along with that from interest and dividends earned on savings and investments and often refers to income from an entire family (household income), not just that from an individual worker. It also includes income taxation from capital gains, the income realized from selling capital assets like stocks and real estate. In addition to income taxes, wages are subject to a payroll tax, which is levied on a company’s payroll (half of which is deducted from an employee’s paycheck) to finance the Social Security and Medicare programs. Payroll taxes are now the second major source of revenue and

121

122

Public Policy

Figure 5.4 Sources of Federal Tax Revenue

Source: “Federal Revenue: Where Does the Money Come From?” National Priorities Project, 2013, http://nationalpriorities.org/budget-basics/federal-budget-101/revenues.

gaining on the federal income tax. Workers transfer part of their earnings to retired workers through mandatory payroll deductions that, in 2014, amounted to 6.2 percent of wages on income up to $117,000. Employers contribute an equal amount.24 Taxes on Corporate Income

The profits of corporations are taxed. The federal corporate tax ranges from 15–35 percent. Thirty-five percent would be assessed on a corporation with over $18.3 million in taxable income. Despite the rhetoric often heard from corporations and some members of Congress, the United States has one of the lowest effective corporate tax rates for developed countries. Corporations, for example, do not pay US taxes on income earned by foreign subsidiaries unless it is returned to the United States. Citizens for Tax Justice, a think tank dedicated to developing a fairer tax system, has tracked thirty major US companies that have paid little or no taxes since 2008. They found that companies including Exxon-Mobil, Chevron, Valero Energy, General Electric, Boeing, Verizon, and Mattel have paid no corporate income tax

Funding Public Policy

over the last five years despite making billions in profits, due to their ability to move the money around and take advantage of tax loopholes to create a zero-tax liability.25 Closing corporate loopholes would make for a fairer tax system. Taxes on Consumption

The most common form of taxation in the European Union and most states within the United States is on consumption of goods (and oftentimes services). Consumption taxes usually come in the form of sales taxes or excise taxes paid by the consumer to a vendor at the time of purchase of a good or service. Excise taxes are applied to specific goods such as gasoline, alcohol, cigarettes, airline tickets, and firearms. A tax levied on the sale of tobacco products or alcohol is often referred to as a “sin tax,” based on the idea that use of these products imposes externalities on more sober nonusers in the form of air pollution, litter, or health hazards and increases in medical care. Some excise taxes are targeted at purchasers of certain goods who will eventually benefit when the money is spent by the government. Gasoline taxes, for example, are used to finance highway construction. An excise tax that is levied on buyers of expensive nonessential items, such as yachts or fine jewelry, is referred to as a luxury tax since the items are considered to be nonessentials and therefore luxuries. Many excise taxes are levied on goods with a relatively inelastic demand. If the demand were highly elastic, the tax would push sales down significantly, resulting in only small government revenues. Politicians find that raising taxes usually costs some voter support. Therefore, they prefer that taxes be borne by as small a group as possible, or by such a large group that they are a minimal burden on each payer. Politicians find imposing excise taxes easier than imposing other taxes because they can raise a significant amount of revenue while affecting a relatively small number of voters. Nevertheless, excise taxes have declined in importance as a source of federal revenue. Their share of federal tax revenues fell from 13 percent in 1960 to 3 percent in 2014. Taxes on Property and Wealth

Wealth taxes are direct taxes paid not on income as it is earned but on the value of assets held, such as real estate, stocks, bank deposits, and artwork. Many local and state governments levy a “property” tax on private homes, land, and business property based on the assessed market value. Some states and local governments impose taxes on the value of specific types of personal property such as cars, boats, and occasionally livestock. Property taxes account for over 75 percent of the revenue raised through taxes on wealth. Other taxes imposed on wealth include inheritance, estate, and gift taxes.

123

124

Public Policy

Principles of Taxation: Fairness and Efficiency A measure known as the Haig-Simons income defines taxable income as the change in an individual’s power to purchase (consume) goods and services during the year to include any increase in the person’s stock of wealth. The HaigSimons definition focuses on the taxpayer’s ability to pay, based on the resources a person has, regardless of whether the individual decides to spend (consume) or save (add to his or her stock of wealth). The US tax code diverges from the HaigSimons model by allowing tax deductions, which are expenses that are subtracted from the gross amount on which tax is assessed, and tax exemptions, which are a part of a person’s income on which no tax is imposed. For example, an employer’s contribution to an employee’s health insurance is exempted from inclusion as taxable employee income. But the employer’s contribution relieves the employee from paying for that portion of the health insurance, allowing the worker to have more discretionary income to save or spend. Taxpayers who are paying on a home mortgage may deduct the interest paid on that mortgage from their federal tax bill. Although no one enjoys paying taxes, most people grudgingly comply. All but the most eccentric libertarians agree with the assessment of Oliver Wendell Holmes Jr., who famously said, “Taxes are the price we pay for civilized society.” Therefore the tax system must be perceived as fair and just. However, the perceptions of justness and fairness often depend on how a tax affects the individual. Voluntary compliance is related to the perceived tax efficiency (or neutrality) and tax fairness of the system. On tax day, April 15, 2013, Gallup reported that only 55 percent of all US taxpayers regard the income taxes they pay as fair.26 Pew Research took a survey during the same period but focused on whether the public thought the rich paid their fair share in taxes. They found that 58 percent of their survey respondents believed the rich pay too little in taxes.27 Joseph Stiglitz, a Nobel Prize– winning economist, stated that the very rich do not pay their fair share, and he backed it up by findings that the richest 400 individual taxpayers with an average income in excess of $200 million paid less than 20 percent of their income in taxes—less than mere millionaires who paid about 25 percent of their income in taxes, about the same as those earning from $200,000 to $500,000.28 If the system is perceived as unfair, people are more likely to evade taxes if possible, or pressure political entrepreneurs more aggressively to reduce their tax burden. Since the 1980s, the US federal income tax has become less and less progressive due to several tax cuts that have been directed primarily to those in the top tax brackets. Stiglitz points out that the share of income going to the top 1 percent has doubled since 1979, and that the share going to the top 0.1 percent has almost tripled. The top 1 percent owns about 40 percent of the nation’s wealth.29

Funding Public Policy

The reduced progressivity is widely seen as having contributed to the increasing inequality in the distribution of income and wealth (see Chapter 6). Stiglitz noted that the statistics reflect taxes as a percentage of reported income, and the tax laws do not require the reporting of various kinds of income. Hence, many hide assets in various offshore tax shelters like the Cayman Islands to avoid taxes. They do not have to report offshore assets until the money is brought back to the United States. Also capital gains have to be reported only when they are realized.30 A system is in place for a progressive tax through the marginal tax rate, which refers to the percentage of the next dollar of income that is paid in taxes. In the United States, the marginal tax rate rises with income. The 2013 tax rate for married couples filing jointly is, on taxable income, as follows: not over $17,850 (10 percent), $17,850–$72,500 (15 percent), $72,500–$146,400 (25 percent), $146,400–$223,050 (28 percent), $223,050–$398,350 (33 percent), $398,350–$450,000, (35 percent), and taxable income over $450,000 is taxed at 39.6 percent.31 Because the marginal tax rate is graduated among seven brackets, the average tax rate is also an important concept. The average tax rate is the percentage of the total income that is paid in taxes. The tax bill for a married couple filing jointly can be calculated by progressing through the marginal rate schedule until reaching their income level. Let us assume that Bonnie and Clyde have an income of $175,000. Their total tax bill is ($17,850 x 0.1) + ($54,650 x 0.15) + ($73,900 x 0.25) + ($28,600 x 0.28) = $36,465.50

Bonnie and Clyde’s marginal tax rate is 28 percent because that is the rate they pay on their next dollar of income. Their average tax rate is 20.8 percent, which is the tax they owe ($36,465.50) divided by their income ($175,000). This is, in fact, the weighted average of the marginal rates reflecting their share of income in each bracket. Another factor that adds to the complexity of the tax code is the distinction between the statutory tax rate, which is the rate specified in the tax brackets, and the effective tax rate, which is the rate actually paid. Because of a variety of exemptions and deductions from taxable income, the actual taxable income is lower than total income. That is why when one divides the total taxes paid by the total income, the effective tax rate is lower than one would expect by looking at the income tax brackets and gross income, the total income from all sources. A tax filer subtracts deductions, such as contributions to individual retirement accounts (IRAs), which result in the taxpayer’s adjusted gross income (AGI). The effective tax rate, which is invariably lower than the statutory tax rate, will influence how individuals perceive their tax situation.

125

126

Public Policy

Tax Efficiency

Efficiency, or neutrality, suggests that unless adequate justification can be found, the government should try to interfere as little as possible with the market allocation. The freest movement of goods and services maximizes economic efficiency and, therefore, overall economic well-being. Unfortunately, every tax invites concerted efforts to avoid it and influences economic activity and the allocation of resources, even in cases where the market process works well and needs no outside regulation. For example, the preferential treatment that allows individuals to deduct from income taxes the cost of mortgage interest and property taxes on their homes distorts the market by increasing the demand for homeownership over rental units, but the subsidy is a significant cost to the government. The tax revenues forgone by permitting mortgage interest deductions are $85.9 billion per year. If the deduction were stopped, federal tax revenues would rise by roughly $86 billion per year. Similarly, tax laws allow child care payments to be deducted from income. Such preferential treatment, referred to as a tax expenditure, or “loophole,” represents a loss in government revenue just as though the government wrote a check for the amount of income lost by allowing the deduction. However, special interest groups that receive preferential treatment are vigorous defenders of their tax subsidies, and thus subsidies are very difficult to eliminate.

The Benefit Principle The benefit principle holds that people should pay taxes in proportion to the benefits they receive. This principle tries to make public goods similar to private goods in that payment for services is commensurate with the amount of goods or services received. If the purpose of taxes is to pay for government services, then those who gain from those services should pay. A toll bridge is justified using the benefit principle. Tolls collected are used to pay the bonds used for bridge construction and to maintain the bridge. Since those who pay the toll are the same people who use the bridge, the toll is viewed as a fair way to pay for the government service. The more people use the bridge, the more they will pay. Those who do not pay can be excluded. The major disadvantage of this principle is that it will not work for public goods from which nonpayers cannot be excluded, nor will it work where determining who benefits or by what amount is difficult. For example, who benefits most from law enforcement and the judicial system, the rich or the poor? The benefit principle is often used to argue that the more affluent citizens should have a higher tax burden than poorer citizens because they benefit more from public services. For example, the wealthy receive more benefit from a police force than do poor citizens because they have more wealth to protect and their losses would be much greater in the event of theft. Therefore, since police protection is more beneficial to the affluent, they should contribute more.

Funding Public Policy

127

Case Study Lotteries as a Regressive Tax A lottery as a source of public funding combines aspects of public finance through gambling to raise enormous amounts of revenue for governments. But its promises of significant benefits for the general welfare frequently do not live up to expectations. In 2012 US residents spent about $65.5 billion on state lotteries, over $200 for every man, woman, and child in the United States. Approximately $40 billion was paid out in prizes. Administrative costs were approximately $3 billion, which left the states with $22.5 billion in profits. Forty-three states, plus the District of Columbia, Puerto Rico, and the Virgin Islands, have lotteries. Advocates of lotteries rationalize their use because participation is voluntary rather than dependent on a compulsory tax. The fact that playing the lottery is voluntary does not make the “profit” any less of a tax. It is analogous to states raising revenue from an excise tax on alcohol. The purchaser of alcohol does so voluntarily, but no one denies that it is a tax. The fact that the average voter does not think of the lottery as a tax removes a major barrier to taxation from the perspective of state legislators. Consensus among researchers is that state lotteries are a decidedly regressive form of taxation in that average lottery sales are highest in low-income areas and lower in areas of higher economic and educational levels. Sponsored gambling allows many state governments to use lotteries to minimize taxes

that would otherwise have to be paid by middle- and upper-income groups. The result is that states have increasingly resorted to lotteries to increase revenues as a way of sidestepping opposition to tax increases. Research indicates that state economies would get more of a stimulus if consumers bought goods and services rather than lottery tickets. A 1988 study of the Florida lottery, which also earmarks profits from sales to go into the general education fund, found that when one includes the tax incidence (who pays) and the benefit incidence (who receives the funds), the tax was regressive for those with incomes below $40,000. The benefits of the net tax are proportionally distributed at incomes between $40,000 and $70,000 and become progressive at incomes above $70,000. Congress commissioned a national impact study, which found that gambling had not improved Florida’s education or health services. Prior to the introduction of the state lottery, Florida allocated 60 percent of its budget for school improvement. Five years after the introduction of gambling, only 51 percent of its budget was allocated to education. The study noted “the problem with a lottery is that lottery profits are used as a substitute for tax dollars, not as a supplement to them” (emphasis added). Lotteries violate the tax principles of both neutrality and equity and also invite the ethical question of exploiting human desire to extract a regressive tax on the poor.

Sources: Mary Borg, Paul Mason, and Stephen Shapiro, The Economic Consequences of State Lotteries (New York: Praeger, 1991). Alicia Hansen, Lotteries and State Fiscal Policy, Tax Foundation Background Paper no. 46 (Washington, DC: Tax Foundation, October 2004). Victor Matheson and Kent Grote, “U.S. Lotto Markets,” in Handbook of Sports and Lottery Markets, eds. Donald B. Hausch and William Ziemba (New York: North Holland, 2008), pp. 503–524.

The welfare of the wealthy is best served by the Securities and Exchange Commission, the Federal Reserve System, national security, and the judicial system. If agreement could be found on who benefits and by how much, then taxes could be

128

Public Policy

allocated accordingly, and if they are allocated accurately, no income would have to be redistributed. However, allocating taxes by this principle provides an incentive to insist that someone else is the main beneficiary, and their allocation becomes a matter of guesswork and political back-and-forth.

The Ability-to-Pay Principle The ability-to-pay principle claims that fairness requires that taxes be allocated according to the incomes or wealth of taxpayers, regardless of how much or how little they benefit. According to this principle, the wealthy may benefit more than the poor from some government expenditures and less than the poor from others, but since they have more resources to pay than the poor, they should pay more in taxes. This principle is justified by the argument that all citizens should make an “equal sacrifice.” Fairness in this system requires both horizontal and vertical equity. Horizontal equity means that individuals who have nearly equal incomes should have nearly equal tax burdens. Plato had this concept in mind when he wrote in Book 1 of The Republic: “When there is an income tax, the just man will pay more and the unjust less on the same amount of income.” Horizontal equity is lacking when those with equal abilities to pay are treated differently because of tax deductions, credits, or preferences not available to all taxpayers on equal terms. Vertical equity means that those with a greater ability to pay should pay more taxes than those with less ability to pay. Less agreement can be found on how much more the rich should pay. In fact, taxes are generally classified according to their incidence. Tax incidence is the actual distribution of the tax burden on different levels of income. Tax systems are classified as progressive, proportional (sometimes referred to as “flat”), and regressive, as illustrated in Figure 5.5. A progressive tax is one in which the tax rate rises as income rises. Wealthier taxpayers pay a larger percentage of their income in taxes than do low-income taxpayers. A progressive tax redistributes wealth from the more affluent to the less affluent. Keynesian economic theory supports a progressive income tax, and most people in the United States support progressive taxes on the grounds that ability to pay rises more than proportionately with income. A proportional tax is one in which the tax is the same through all income levels. Ordinarily called a flat tax, a proportional tax is often praised by its supporters for its efficiency. By assessing a tax as a fixed percentage of income, a wage earner’s decisions do not affect the amount of tax owed or distort incentives. Since theoretically no deductions are given, everyone can easily compute the amount of taxes owed, leaving little need to hire accountants or tax lawyers. Because the proportional tax is so efficient and imposes only a slight administrative burden on taxpayers, many argue that the United States should adopt it. But efficiency is only one goal of the tax system. Although some think that a system in which everyone

Funding Public Policy

Figure 5.5 Tax Incidence: Progressive, Proportional, and Regressive High

Progressive Average Tax Rate Proportional

Regressive Low

High Income Level

pays the same percentage of their income is fair, others argue the opposite. A proportional tax is neutral in regard to income distribution, and a flat tax prohibits the government from using taxation as an incentive for socially positive behavior. Under a regressive tax, the average rate declines as income rises. It is called “regressive” because high-income taxpayers pay a smaller percentage of their income than do low-income taxpayers, even though they may still pay a higher amount in absolute dollars. A regressive tax redistributes income from the poor to the wealthy. Regressive tax systems are so manifestly unfair that few openly advocate them. A notable exception is George Gilder, a conservative writer with refreshing frankness but doubtful logic who wrote, “Regressive taxes help the poor.”32 Gilder, whose work was widely and approvingly read by supply-siders of the early 1980s, also declared that “to help the poor and middle classes, one must cut the taxes on the rich.”33 Sales taxes are often confused with a flat tax because two individuals with vastly different incomes will pay the same sales tax on the purchase of a good, such as a gallon of gas. Sales and property taxes are regressive because poorer people must spend a higher percentage of their income for goods and services, as well as housing costs, than do the affluent. In theory, the federal income tax is designed to support the principle of vertical equity by being mildly progressive. As previ-

129

130

Public Policy

ously noted, however, due to the complexity of the tax code, the wealthiest 1 percent can end up paying a lower average rate than those who are less affluent. Federal tax progressivity has been declining for several decades. Although both political parties bear some responsibility for these changes, Republicans have been more aggressive in pushing the discredited idea that tax reductions for the affluent will “trickle down” to the middle and lower classes. The Social Security tax (or payroll tax) is an example of a tax that is proportional in the lower ranges but regressive for those receiving income in excess of the maximum wage for which taxes are withheld. As mentioned above, this payroll tax requires individuals and employers to pay the same rate on wages up to $117,000 (in 2014). Above $117,000, the marginal tax rate is zero (recall that the marginal tax rate is defined as the tax on additional income). Rather than exempting low incomes, it exempts high incomes. Once the ceiling is reached, no more payments are made for the year. Also, since only salaries are subject to the payroll tax while income from interest is untouched, it is ultimately regressive.

Government Spending as an Instrument of Public Policy The catastrophic nature of the Great Depression and President Roosevelt’s reaction to it in the New Deal led to social insurance programs to insure individuals against income shocks. Eligibility for major programs such as unemployment insurance, disability insurance, workman’s compensation, and Social Security are based on particular events, such as a loss of employment, injury at work, a disability that leads to an inability to work (e.g., suffering a stroke), or attainment of a qualifying age (Social Security). Participation in these programs is usually mandatory through payroll tax deductions. When participation is voluntary, such as the Affordable Care Act, the cost is subsidized to ensure essentially universal participation (see “Health Care,” Chapter 9). Social insurance is valued because individuals value economic stability in their lives and would choose, if possible, to buy insurance to protect themselves against a potential adverse outcome in the future. For example, a family with an income of $40,000 in both year 1 and year 2 would typically have a higher income utility (the incremental change in satisfaction) than having a consumption level of $60,000 in year 1 and $20,000 in year 2. In economic terms, the marginal utility of raising their consumption from $40,000 to $60,000 in year 1 is less than the loss in utility by reducing consumption from $40,000 to $20,000 in year 2. Consumption smoothing through social insurance can translate consumption from periods when it is high (and each additional dollar has a lower marginal utility) to periods when it is low (and each additional dollar has a higher marginal utility).34 Social insurance can reduce fluctuations in consumption due to changed circumstances, such as retirement. Critics point out that a downside is that providing

Funding Public Policy

Social Security, unemployment, or disability payments may reduce the incentives for individuals to save for those potential eventualities. However, because of asymmetric information, no private markets exist from which an individual could purchase insurance against unemployment or physical disability. An individual seeking insurance may be a “high-risk” individual for health problems but withhold that information from the insurer. Insurers aware of the problem of adverse selection know that they will probably lose money if they offer insurance and will decide not to enter the market. Similarly, the government cannot differentiate between the elderly living in poverty because of circumstances beyond their control from those who game the system by intentionally not saving in an effort to receive government transfers. If history is any guide, most individuals do not have sufficient savings to tide them over a significant period of unemployment, nor do they have sufficient funds, even with a pension, 401k, and savings, to maintain their preretirement lifestyle. The government has no way to distinguish between the “deserving” and “nondeserving” poor with any confidence. So in the face of market failures, government intervention with a mandatory program may produce a Pareto improvement, an economic action where some are better off and no one is worse off.

Social Security and Reducing Poverty Among the Elderly Until the twentieth century, few in the United States could look forward to a retirement period at the end of their working lives. In 1900, the life expectancy for men was about forty-seven years. Nevertheless, about two-thirds of men age sixty-five and older were still in the labor force.35 With insufficient savings and without a pension program, most were forced to work as long as they were physically able. Because of changing trends in employment, retirement, and life expectancy, the average age at which individuals retire dropped (i.e., in the United States from seventy-four years in 1910 to sixty-one in 2013), but at present the retirement age is trending upward. By 2013, with a life expectancy of about 78.9 years, the average age of expected retirement for men still in the labor force rose to sixty-six.36 A growing life expectancy and a resultant extended retirement are clear advances in the general welfare of society, but they also present challenging public policy issues, as the increased longevity means that most recipients will receive lifetime benefits far in excess of their contributions. A report by the MacArthur Research Network on an Aging Society estimates that by 2050, life expectancy for females will rise to 89.2–93.3 years and to 83.2–85.9 years for males.37 In 2013, there were 2.8 workers for each Social Security beneficiary, but by 2033, there are projected to be just 2.1 workers for each beneficiary.38 The economic and policy implications of these demographic factors are huge.

131

132

Public Policy

Social Security began in 1935 at the depths of the Great Depression, which wiped out the lifetime savings of many elderly citizens. The basic motivation for Social Security—technically, Old-Age, Survivors, and Disability Insurance—was to ensure that most elderly would have sufficient savings and income to adequately provide for their needs in retirement. Thus, the program was designed to force workers to save for their retirement by paying taxes during their working careers that would entitle them to receive benefits upon retirement. The program was intended to provide a basic safety net but was never intended to meet all retirement needs. Nevertheless, this New Deal system has become the nation’s largest social insurance program. The Federal Insurance Contributions Act (FICA) requires employers to withhold 6.2 percent of a worker’s wages through a payroll tax. The employer (or the worker if self-employed) also pays 6.2 percent on the same earnings, for a total tax burden of 12.4 percent up to $117,000 of earnings in 2014. To be eligible to receive Social Security benefits upon retirement, persons must have worked and paid the payroll tax for forty quarters (ten years) and must be age sixty-two or older. When eligible, the recipient receives an annuity payment monthly until his or her death. The amount of the payment is determined by the average lifetime earnings expressed in today’s dollars by inflating their value since the earnings were received. The government averages the worker’s earnings over his or her thirty-five highest earning years. If a person has worked for less than thirty-five years, the missing years are averaged in as years of zero earnings. Conversely, if a person has worked more than thirty-five years, the lowest earning years are not counted when calculating the average. The thirty-five-year average of monthly earnings is called the “average indexed monthly earnings.” For most families, the primary savings for their retirement years consist of pensions and savings plans encouraged by tax incentives. Legislation providing tax incentives for employer-based pensions was passed in 1921. Legislation establishing Keogh accounts in 1962 and IRAs in 1974 expanded the eligibility for workers to participate in tax-sheltered savings plans. Workers with access to defined benefit pension plans fell from 38 percent to 18 percent between 1980 and 2009. Workers with defined contribution plans increased from 8 percent to 31 percent during the same period.39 Nevertheless, today over half of US workers have no workplace retirement plan. The result is that, for the average worker, Social Security makes up a larger part of their retirement income than private pensions, as indicated in Figure 5.6. By requiring workers to contribute to the program through payroll taxes, the Social Security program does crowd out private savings for retirement to some degree. But the value of the program in providing income to the elderly is shown by the great reduction in poverty rates among the elderly over the past fifty years.

Funding Public Policy

133

Figure 5.6 Average Income by Source for the Elderly, 2008

Source: Patrick Purcell, Income of Americans Aged 65 and Older: 1968 to 2008, Congressional Research Report, November 4, 2009, p. 13, http://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?article=1680&context =key_workplace.

Currently, about 95 percent of married couples, one of whom is age sixty-five or older, receive Social Security benefits. Social Security is the only form of pension income for about half of these households. Many financial planners suggest that families need about 70 percent of their preretirement income in order to maintain their standard of living. In short, Social Security is a critical resource, especially for low-income retirees. As Figure 5.6 indicates, many retirees can add significant income to their Social Security benefits with pensions and continued earnings. Many low-income individuals do not have that option. Among elderly Social Security beneficiaries, 53 percent of married couples and 74 percent of unmarried persons receive 50 percent or more of their income from Social Security.40 Twenty-three percent of elderly married couples and 46 percent of unmarried persons rely on Social Security for 90 percent or more of their income.41 In 1961, a White House conference on aging found that over half of elderly couples could not afford decent housing, proper nutrition, or adequate medical care. Presidents John F. Kennedy and Lyndon B. Johnson subsequently pushed to expand Social Security and establish Medicare. Since 1959, poverty rates among

134

Public Policy

the elderly have declined from 35 percent to 8.7 percent in 2011, compared to the national poverty rate of 13.7 percent of people age eighteen to sixty-four.42 The major events that have contributed to this change in the lives of the elderly are the increases in Social Security benefits enacted in the 1960s and 1970s and the indexing of those benefits to average wage increases. Without Social Security, about half of the elderly would fall below the poverty line. According to a study by the National Bureau of Economic Research, poverty rates rise during recessions and fall during economic expansions with predictable regularity—but only for the nonelderly, not the elderly, highlighting the protective and stabilizing effect of Social Security for retirees.43 The system has a deliberate redistributive slant to reduce poverty. Retirees who earn lower wages during their working careers get higher returns. The Social Security benefit schedule is progressive, and although some benefits are subject to partial taxation, the benefits are not means tested, allowing many people to add other sources of income, such as pension benefits, to their Social Security benefits to achieve a level of income in retirement close to the level achieved during their working years. Social Security lifts more elderly people out of poverty—nine out of ten—than all other transfer programs combined. Social Security also works as a national group insurance plan to provide payments to roughly 5 million disabled adults and 3 million children every month. Disabled workers and their dependents account for 16 percent of total benefits paid. Approximately 90 percent of workers between the ages of twenty-one and sixty-four are covered under the “disability” insurance part of the program. Almost 70 percent of the private workforce has no other long-term disability insurance. To make the system more financially viable, in 1983 a commission headed by Alan Greenspan recommended increasing the retirement age for full coverage from age sixty-five to age sixty-seven to partially offset increased life expectancy, a change that will be fully implemented in 2027. The commission’s final draft report recommended that Social Security be changed from a “pay-as-you go” plan, in which taxes collected from workers today are “transferred” to today’s retirees, to a partially funded system in which savings are invested in financial markets, and the funds with accumulated interest, dividends, and capital gains can pay the future benefits promised by the plan. The intent of the 1983 revisions was to raise payroll taxes to take in more money than was paid out while baby boomers were still in the workforce. The surplus payroll tax revenues were to be used to buy US Treasury bonds and deposit them in the Social Security Trust Fund to pay out a higher amount when baby boomers began retiring. In essence, those who have paid Social Security payroll taxes from 1983 onward should have been funding their own retirement. From 1983 until 2010 increased payroll taxes produced $2.7 trillion in surplus Social Security revenue. However, none of the Social Security surplus (i.e., taxes collected in excess of

Funding Public Policy

what was needed to pay retirees) was used to buy Treasury bonds. The government “borrowed” the surplus from the Treasury Department to pay for current government operations. The funds were used to support all manner of government operations, from the war in Iraq and salaries for military and civilian government employees to tax cuts for the wealthy. To justify not buying bonds with the surplus Social Security funds, the government created “special issue” securities “backed by the full faith and credit of the United States.” Accounting entries indicate the amount of “assets” deposited in the Treasury Department’s Social Security Trust Fund, but since the “special issue” securities cannot be sold on the market like other government bonds, they are rather like the government placing IOU notes in the Social Security Administration’s bank vault. The IOUs provide a record of how much the government owes the trust fund and the interest it should be accruing. From the perspective of the government, once the money is used for government operations, which reduces the annual deficit, the bonds are “unfunded liabilities” in that the government is obligated to pay back the funds it has borrowed. They belong to the Social Security Trust Fund and to the workers whose payroll tax contributions created the Social Security surplus.44 Without the Social Security surplus, the government would have been forced to cut other programs, raise taxes, or increase the deficit. The government presumably must pay the interest on the “special issue” securities (or IOUs) and redeem them because the alternative of defaulting on them would call into question its ability to finance its deficit. As of 2013, the government has borrowed over $2.7 trillion from the Social Security Trust Fund.45 In fact, since 1983 all of the surplus money from increased Social Security payroll taxes was spent on general government operations, and in 2019, retiree benefits are projected to begin exceeding payroll tax receipts. At that time, Social Security tax receipts were expected to be supplemented by redeeming money held in the interest-bearing trust fund accounts. In 2010, the Congressional Budget Office reported that rising unemployment had resulted in a predictably sharp decline in the payroll tax revenue. The cost of funding full benefits was $49 billion more than the Social Security tax revenue for that year. In fact, the trust fund had no Treasury bonds, only IOUs that provide a record of how much the government borrowed and spent on various programs. But the IOUs are not marketable. The government was forced to borrow $49 billion by selling bonds to institutions and foreign governments to pay full benefits. Because the surplus was gone and more benefits were going out than payroll taxes were coming in, President Obama warned in 2011 that if obstructionists in Congress were to shut the government down rather than raising the debt ceiling, he could not guarantee that Social Security checks would go out on time.46 Critics argue that “there is no trust fund,” and the idea of a separate pot of money for Social Security is meaningless in a unified budget. But the government

135

136

Public Policy

does have dedicated taxes for things like pollution control and highway maintenance. Paul Krugman has pointed out that if Social Security is just part of a unified federal budget with no trust fund of its own, there cannot be a Social Security crisis. All one can have then is a general budget crisis. Rising Social Security payments may be an element of the crisis, which then must be dealt with along with other parts of the budget.47 Despite the current problems with the Social Security system, it is not broken. Conservative politicians in their war against Social Security argue that it is not sustainable in its present form in the long run. Their proposal to “fix” Social Security tends to be a variation of President George W. Bush’s proposal when he suggested a restructuring of Social Security as the centerpiece of his second term. He proposed to dramatically shrink Social Security benefits, replacing a much smaller share of preretirement wages for workers who retire in the future. His “privatization” plan would have allowed workers to divert up to 4 percent of the 12.4 percent payroll tax (up to $1,000 a year) into a personal investment account, bringing poorer workers into the “ownership” society since they would have, in theory, owned part of their retirement. Proposals geared to maintaining or increasing Social Security benefits include raising the retirement age to sixty-eight or sixty-nine for full benefits, raising the Social Security payroll tax by 3.2 percent (15.6 percent of payroll), raising the upper limit on the Social Security payroll tax, and broadening the base of those contributing to Social Security by bringing in all state and local government workers, many of whom are currently exempt because they contribute to their own pension plans.

Unemployment Insurance Unemployment insurance helps workers who find themselves with no job through no fault of their own by temporarily replacing part of their wages. This federal program was created in 1935 as a form of social insurance to provide individuals with income support if they lose their jobs. The program serves as an automatic stabilizer by providing workers with cash benefits payable to eligible individuals, particularly in economic downturns. As a social insurance program it provides some consumption smoothing for the individual due to a loss of salary. The unemployment insurance system is funded by taxes that employers pay on behalf of their employees. While technically the employer pays federal and state taxes, from an economic perspective the tax is generally regarded as being paid by the worker on the theory that the money paid in insurance would otherwise be used to increase the worker’s wages. Federal law provides the basic blueprint for unemployment insurance in the United States, but it is generally administered by the states, which have broad dis-

Funding Public Policy

cretion to set up the criteria for eligibility. As a result considerable variation can be found in general standards. Some states’ unemployment insurance programs do not cover part-time workers unless the worker is willing and actively seeking work and will take a full-time job if available. States can set their benefit levels and duration for workers as well as the length of prior employment necessary to qualify for benefits. Unemployment insurance does not cover individuals attempting to enter the labor force for the first time nor those who voluntarily left the labor force and are trying to reenter. Workers in most states are eligible for a maximum of twenty-six weeks, although several states limit eligibility to shorter periods (often twenty weeks). In typical situations workers find new employment before the expiration of their eligibility. States often try to replace about half of a worker’s previous wages, but all states have a cap on benefits. In 2012 the average unemployment insurance benefit was about $300 per week. Workers who use up their benefits without finding work can receive additional coverage of benefits through the Emergency Unemployment Compensation program passed in 2008. In the Great Recession, many states stopped meeting the requirements by the spring of 2013. When workers lose their employment, they try to engage in consumption smoothing through self-insurance, by drawing down their savings, for example. They may also borrow against the equity in their homes or receive benefits from family, friends, or churches. But these resources are often limited and, in the especially prolonged unemployment frequently experienced in the recent economic downturn, can quickly be exhausted. The benefits of social insurance are the highest when events are unpredictable and most costly.

Conclusion Market economies have a cyclical tendency that leads to speculative excess that results ultimately in insufficient demand, which leads to businesses’ reducing investment and laying off workers. The speculative bubble, whether in the stock market in the 1920s or the housing market in the first decade of the present century, requires a clear focus of the government on public policies to relieve the suffering caused by unemployment. Keynes provided the theoretical understanding of the inherent instability of the system and how monetary and fiscal policies can mitigate the negative aspects of these economic events. It took the Great Depression and the presidency of Franklin D. Roosevelt to redefine the social compact of the Constitution “to promote the general welfare” and give the idea of responsive government in the United States new meaning, and for a prolonged period after World War II, a consensus took hold on the positive role of government, especially in using the tools to mitigate the pain caused by economic downturns. Through the New Deal, Roosevelt tried to

137

138

Public Policy

counter the weaknesses in the economy through commonsense policies to stabilize demand. Reducing taxes, particularly for lower- and middle-income workers, will result in an increased injection of demand into the economy, which should result in a greater demand for labor to produce the goods demanded. Government spending in excess of tax revenues can also be used to stimulate economic activity, and monetary policy also has an important function in such situations: by keeping interest rates low, the government encourages investors to engage in new ventures and consumers to borrow for expenditures, which add to demand. Government taxing and spending through such programs as Social Security, disability insurance, and unemployment insurance are also available to be used as automatic stabilizers to “lean against” economic downturns by maintaining a level of aggregate demand even as the economy contracts. Since the 1980s a reaction has set in contesting the legitimacy of government programs designed to mitigate the stresses associated with poverty and unemployment. An extremely vocal and aggressive minority now dismisses the advancement of economic theories despite their success in the practical experiments of policy application. Adherence to economic ideas that have been tried and found wanting indicate that many political interests find that policies that restrain growth and higher employment may be preferred to policies that stimulate economic activity and employment. The economic theory is fairly settled, even if coordinating monetary and fiscal policies to achieve the basic goals is far from foolproof. Ideology not only provides different perspectives regarding sound social welfare policy but also elevates ideological commitment over pragmatic problem solving in public policy. Ideology frequently trumps practical politics. Years of conservative marketing have convinced many US voters that government programs always create inefficient, bloated bureaucracies, while private markets are always more efficient despite evidence to the contrary, as in the case of Social Security.

Notes 1. See Eric Kleefeld, “Romney: Don’t Try and Stop the Foreclosure Process,” Talking Points Memo, October 18, 2011, http://talkingpointsmemo.com/livewire/romney-don-t-try -to-stop-foreclosures, accessed April 4, 2014. Kleefeld quoted Romney on his approach to the foreclosure crisis: “One is, don’t try and stop the foreclosure process. Let it run its course and hit bottom, allow investors to buy up homes, put renters in them, fix the homes up, and let it turn around and come back up.” Also, Mitt Romney in an opinion piece in the New York Times, November 18, 2008, wrote, “If General Motors and Chrysler get the bailout their chief executives asked for yesterday, you can kiss the automobile industry goodbye,” “Let Detroit go Bankrupt,” November 18, 2008, http://www.nytimes.com/2008 /11/19/opinion/19romney.html?_r=0, accessed April 4, 2014.

Funding Public Policy 2. Franklin D. Roosevelt, “Campaign Address at Madison Square Garden,” October 31, 1936, https://www.youtube.com/watch?v=3nuElu-ipTQ. 3. Paul Krugman, The Conscience of a Liberal (New York: W. W. Norton, 2007), p. 62. 4. Ibid., p. 58. 5. President Eisenhower was a small-government Republican who wanted to “prune” those New Deal programs that were no longer needed, but he also wanted to sustain and even enhance programs with good track records like Social Security. In a letter to his brother, Edgar Eisenhower, on November 8, 1954, the president wrote, “Should any political party attempt to abolish social security, unemployment insurance and eliminate labor laws and farm programs, you would not hear of that party again in our political history. There is a tiny splinter group, of course, that believes that you can do these things. . . . Their number is negligible and they are stupid” (“Social Insecurity,” Snopes.com, March 20, 1995, http://www.snopes.com/politics/quotes/ike.asp). 6. Ron Suskind, The Price of Loyalty: George W. Bush, the White House, and the Education of Paul O’Neill (New York: Simon and Schuster, 2004). 7. Lori Montgomery, “Fearing a Soaring Deficit, Many Analysts Favor Letting Bush Tax Cuts Expire,” Washington Post, September 9, 2010, http://www.washingtonpost.com /wp-dyn/content/article/2010/09/20/AR2010092005699.html. 8. Ibid. The administration’s proposal would have preserved tax cuts for those earning less than $1 million but still would have contributed almost $2 trillion to the debt. 9. Source Watch, “Grover Norquist,” February 18, 2013, www.sourcewatch.org/index .php?title=Grover_Norquist. 10. Ibid. He boasted to his “Leave Us Alone Coalition” that his ideal citizen “is the selfemployed, homeschooling, IRA-owning guy with a concealed-carry permit. Because that person doesn’t need the goddamn government for anything” (ibid.). 11. Garry Wills, A Necessary Evil: A History of American Distrust of Government (New York: Simon and Schuster, 1999), p. 320. 12. Ibid. 13. Citizens for Tax Justice, “The U.S. Continues to Be One of the Least Taxed of the Developed Countries,” April 8, 2013, http://ctj.org/ctjreports/2013/04/the_us_continues_to _be_one_of_the_least_taxed_of_the_developed_countries.php#.UemtDuBwYQi. 14. Paul Krugman, “Moochers Against Welfare,” New York Times, February 16, 2012, http://www.nytimes.com/2012/02/17/opinion/krugman-moochers-against-welfare.html?page wanted=print. See also Binyamin Applebaum and Robert Gebeloff, “Even Critics of Safety Net Increasingly Depend on It,” New York Times, February 11, 2012, p. A1. 15. Dashiell Bennett, “The More Americans Benefit from the Safety Net, the More They Hate It,” Atlantic Wire, February 13, 2012, http://www.theatlanticwire.com/national/2012 /02/more-americans-benefit-safety-net-more-they-hate-it/48607/. 16. Clark Merrefield, “States That Sponge Tax Dollars,” Daily Beast, April 4, 2011, http://www.thedailybeast.com/articles/2011/04/05/budget-fight-which-states-take-more -from-dc-than-they-give-back.html. 17. Suzanne Mettler, “Our Hidden Government Benefits,” New York Times, September 19, 2011, http://www.nytimes.com/2011/09/20/opinion/our-hidden-government-benefits.html. See also Mettler, “Reconstituting the Submerged State: The Challenges of Social Policy Reform in the Obama Era,” Perspectives on Politics 8, no. 3 (September 2010): 803–824. 18. Mettler, “Our Hidden Government Benefits.” 19. Arthur M. Schlesinger Jr., The Age of Roosevelt: The Coming of the New Deal, American Heritage Library ed. (New York: Houghton Mifflin, 1988), pp. 308–309.

139

140

Public Policy 20. Mettler, “Our Hidden Government Benefits.” 21. Ibid. See also Suzanne Mettler, The Submerged State: How Government Policies Undermine American Democracy (Chicago: University of Chicago Press, 2011). 22. Quoted in Ezra Klein, “Romney’s Theory of the Taker Class and Why It Matters,” WONKBLOG, Washington Post, September 17, 2012, http://www.washingtonpost.com /blogs/wonkblog/wp/2012/09/17/romneys-theory-of-the-taker-class-and-why-it-matters/. 23. National Priorities Project, “Federal Revenue: Where Does the Money Come From?” http://nationalpriorities.org/budget-basics/federal-budget-101/revenues/, accessed March 24, 2014. 24. From an economic perspective the employee bears 100 percent of the deduction because if the payroll deduction for Social Security did not exist, the employer would pay the 6.2 percent to the employee as wages rather than as a tax to the government. 25. Citizens for Tax Justice Report, “Big No Tax Corporations Just Keep on Dodging,” April 9, 2012, http://ctj.org/ctjreports/2012/04/big_no-tax_corps_just_keep_on_dodging .php#.Ue9SkODR1Fl. 26. Jeffery M. Jones, “Fewer Americans Now View Their Income Taxes as Fair,” April 15, 2013, http://www.gallup.com/poll/161780/fewer-americans-view-income-taxes-fair.aspx. More conservatives felt the income tax was unfair rather than fair (50 percent to 45 percent), while more moderates thought the tax was fair (59 percent) rather than unfair (40 percent), while 70 percent of liberals said it was fair versus unfair (28 percent). 27. Kim Parker, “Yes, the Rich Are Different,” Pew Research Social and Demographic Trends, August 27, 2012, http://www.pewsocialtrends.org/2012/08/27/yes-the-rich-are-different/. Only 26 percent say the rich pay their fair share, and 8 percent said they paid too much. Even among the 17 percent of Pew survey respondents who identified as upper class or upper-middle class, 52 percent said they do not pay enough in taxes. 28. Joseph Stiglitz, “A Tax System Stacked Against the 99 Percent,” New York Times, Opinionator Blog, April 14, 2013, http://opinionator.blogs.nytimes.com/2013/04/14/a-tax -system-stacked-against-the-99-percent, accessed April 4, 2014. 29. Ibid. 30. Ibid. 31. “About.com Tax Planning: U.S.,” About.com, http://taxes.about.com/od/Federal -Income-Taxes/qt/Tax-Rates-For-The-2013-Tax-Year.html. 32. George Gilder, Wealth and Poverty (New York: Basic, 1981), p. 188. 33. Ibid. 34. Marginal utility addresses how a product is valued. Adam Smith argued that a product’s value was determined by the amount of labor time necessary to make a product (the labor theory of value). Later nineteenth-century British economists William Stanley Jevons and Alfred Marshall argued that a product’s marginal utility determined its value (the exchange theory of value). Essentially, marginal utility establishes that people derive less satisfaction from the consumption of every additional unit of a commodity. For example, Katherine likes potato chips but eventually, she will tire of the chips and switch to something else. 35. Dan McGill, Kyle Brown, John Haley, and Sylvester Schieber, Fundamentals of Private Pensions, 7th ed. (Philadelphia: University of Pennsylvania Press, 1996), p. 5. 36. Alyssa Brown, “In the U.S., Average Retirement Age Up to 61,” Gallup Economy, May 15, 2013, http://www.gallup.com/poll/162560/average-retirement-age.aspx. See also US Census Bureau, Statistical Abstract 2012 (Washington, DC: US Government Printing Office), p. 77, Table 104.

Funding Public Policy 37. MacArthur Foundation, “New Research Predicts Longer Life Expectancy for Americans, Higher Outlays for Medicare and Social Security,” MacArthur Research Network on an Aging Society, December 14, 2009, http://www.agingsocietynetwork.org/millbank-research -press-release-12-14-09. 38. Social Security Administration, “Social Security Basic Facts,” July 26, 2013, http://www.ssa.gov/pressoffice/basicfact.htm. 39. Barbara Butrica, Howard Lams, Karen Smith, and Eric Toder, “The Disappearing Defined Benefit Pension and Its Potential Impact on the Retirement of Baby Boomers,” Social Security Bulletin 69, no. 3 (2009), http://ideas.repec.org/p/crr/crrwps/wp2009-2.html, accessed April 4, 2014. 40. Social Security Administration, “Social Security Basic Facts.” 41. Ibid. 42. US Census Bureau, “Current Population Survey Data,” http://www.census.gov/hhes /www/poverty/about/overview/index.html, accessed March 24, 2014. 43. National Bureau of Economic Research, “Social Security and Elderly Poverty,” http://www.nber.org/bah/summer04/w10466.html, accessed March 24, 2014. 44. On this point, see Allen W. Smith, The Looting of Social Security (New York: Carroll and Graf, 2003). 45. Allen W. Smith, “Government Owes $2.7 Trillion to Social Security,” FedSmith.com, May 23, 2013, http://www.fedsmith.com/2013/05/23/government-owes-2-7-trillion-to-social -security, accessed March 24, 2014. 46. Ibid. 47. Paul Krugman, “About the Social Security Trust Fund,” New York Times, March 28, 2008, http://Krugman.blogs.nytimes.com/2008/03/28/about-the-social-security-trust-fund.

141

6 The Politics and Economics of Inequality

In this chapter, we focus on the oldest story in every society: the tension between the haves and the have-nots. As ancient Greek historian Plutarch observed early in the first millennium, “an imbalance between rich and poor is the oldest and most fatal ailment of all republics.”1 Throughout history, elites have boldly justified their special claim to wealth, power, and privilege through the development of national myths that legitimize their position. Democracy in its formal requirement for freedom of expression, via regular elections, full citizen participation, and a responsive government was not possible where an aristocracy not only controlled all political power but also had tight control over land, labor, and capital. Democracy, based on the fundamental principle of equality, sweeps aside all claims of privilege. As Supreme Court Justice Louis Brandeis said, “we can have democracy in this country or we can have great wealth concentrated in the hands of a few, but we cannot have both.”2 President Barack Obama called the growing income gap the “defining challenge of our time.”3 Democracy is always threatened by the possible collusion between the government and the rich, who want to take control of government for their own benefit. Great wealth concentrated in relatively few hands, particularly the hands that also control the institutions of governmental power, will assure that the interests of the wealthy are served first. Democratic government’s stated primary purpose of serving “we the people” to “promote the general welfare” can become an illusion manipulated by the powerful. When that effort to serve the interests of the wealthy succeeds, the institutions of democracy will continue to exist long after the political system has degenerated into an oligarchy. 143

144

Public Policy

The study of income and wealth distribution is concerned with how the national income is divided among persons. A basic question of public policy is, why should the government be involved in attempts to redistribute income? In Chapter 1, we pointed out that the distribution of resources by the market does not necessarily result in socially optimal (or even socially acceptable) outcomes. We also mentioned that oftentimes market failures necessitate government intervention (such as in health care or during the severe economic crisis that began in August 2007). The philosophy of John Rawls, also discussed in Chapter 1, provides arguments for redistribution particularly to help low-income members of society. For economists such as Adam Smith, Karl Marx, and John Maynard Keynes (see Chapter 4), distribution was a central issue. Other major questions regarding the distribution of wealth and income include whether or not some inequality is inevitable. If so, how much inequality can a system tolerate? Is there a threshold beyond which inequality in wealth or income undermines political democracy? What kinds of public policies regarding inequalities would improve the quality of life for most citizens? Should democratic governments coordinate policies to reduce the variability of inequality in various nations? The private sector, as economic theory makes clear, is not likely to help redistribute income because of individual self-interest: “I would like the poor to have the ability to buy more education, health care, housing, and so forth. But I will be better off if others provide the poor with the means of increasing their consumption while I do not bear any of the costs.” The problem is that everyone else’s self-interest is the same.

The Promise of Equality in the First New Nation Politics is often defined as the ongoing struggle over who gets what, when, and how. Throughout history much of the struggle was determined by the ability of a powerful actor, whether a warlord, a monarch, or an oligarch, to maintain a life of wealth and privilege at the expense of others. The eighteenth-century Enlightenment thinkers challenged the domination of society by a hereditary and tyrannical aristocracy. They believed that human reason was the indispensable weapon needed to battle ignorance, superstition, and tyranny and to build a better world. Thinkers of the Enlightenment stressed individualism over community, and freedom replaced authority as a core value. Many Enlightenment thinkers were merchants who resented paying taxes to support a privileged aristocracy. They found particularly galling the fact that the aristocrats were unwilling to share power with the merchants and manufacturers who actually contributed to the national wealth. The intellectual leaders of the American Revolution were captivated by the Enlightenment’s opposition to unchecked privilege since they hoped to build a democracy that would require tolerance, respect for evidence, and informed pub-

The Politics and Economics of Inequality

lic opinion. Their notion of democracy was one in which government would make decisions on behalf of the “general welfare,” not for the advantage of the privileged few. The concept of equality written into the Declaration of Independence, together with the concept of “human rights,” which has become an essential part of US culture, is our “civil religion.” These notions from the Enlightenment were not seen by early citizens of the United States as naïve optimism but as the promise of the American Dream—the widespread belief in an open, vigorous, and progressive community committed to equal opportunities for all in which life would improve for each generation. The American Dream also held that the income and wealth that the economy generated would become more evenly distributed. The leaders of the American Revolution intended to do more than free themselves from forced obedience to a monarch; they wanted to create a government that would offer greater freedom and dignity to the average citizen. Some went so far as to propose that all free white males be allowed to vote. Other influential delegates to the Constitutional Convention in Philadelphia in 1787 were more dubious and proposed a government administered by gentlemen of property to maintain their life of privilege at the expense of others. The Constitution that resulted specifically provided for the House of Representatives to represent interests of “the people.” Congress, aware of the unprecedented granting of power to the people, used the words of the Roman poet Virgil in the Great Seal of the United States—“a new age now begins.”4 The principle of checks and balances resulted from the inability of the framers of the Constitution to agree precisely how to distribute power among the branches. Yet the commitment to hold all men as being “created equal and endowed by their creator with inalienable rights to life, liberty, and the pursuit of happiness” was not enforced. A war on inequality began to force the government to live up to the promise. Propertyowning requirements for voting were abolished, though a civil war was required to free slaves, decades passed before women won voting rights, and another century passed before civil rights legislation gave substance to that freedom. To the leaders of the American Revolution, democracy was looked upon as the completion of the human struggle for freedom. The constitutional framers were well aware of the difficulty of reconciling individuality and liberty with democratic equality. James Madison expressed his concern over the inherent conflicts a democratic society would have to address when he wrote in The Federalist #10 that the “most common and durable source of factions” in society is “the various and unequal distribution of property.”5 Thomas Jefferson’s bias in favor of equality is also well known. He believed that the innate differences between men were small:6 I am conscious that an equal division of property is impracticable. But the consequences of this enormous inequality producing so much misery to the bulk of mankind,

145

146

Public Policy legislators cannot invent too many devices for subdividing property. . . . Another means of silently lessening the inequality of property is to exempt all from taxation below a certain point, and to tax the higher portions of property in geometrical progression as they rise.7

Jefferson went on to say that the government should provide “that as few as possible shall be without a little portion of land,” as the “small landholders are the most precious part of a state.”8 Opponents of the trend toward equality used the vocabulary of the Enlightenment and Jeffersonian liberalism but attached different definitions to words like “individualism” and “progress.” While Charles Darwin expressed concern for the poor when he wrote, “If the misery of the poor be caused not by the laws of nature, but by our institutions, great is our sin,” his theory of natural selection led to the theory of evolution, a scientific theory revised by Herbert Spencer into the sociological theory of “social Darwinism.” Spencer endorsed as a scientific finding that the destruction of the weak and the “survival of the fittest” constituted the essence of progress. Historical research by economists Peter Lindert and Jeffrey Williamson shows that at the time of the American Revolution, the United States actually was “more egalitarian than anywhere else in the measurable world.”9 Those in the future United States who were free at the time, carpenters and shopkeepers and the like, had a slightly higher income than their counterparts by occupation in England. Lindert and Williamson found that even when slaves were included in the calculation of inequality, life in the colonies was still slightly more egalitarian.10 The only group that was better off than their colonial peers were those at the very top in Europe. These data reinforce the ideas of many keen observers of the period. Thomas Jefferson, in a letter to Thomas Cooper, University of South Carolina college president (1821–1833), compared the conditions in British-controlled North America and Great Britain. Jefferson praised the economic equality of colonial society in contrast to the conditions in England: First, we have no paupers, the old and crippled among us, who possess nothing and have no families to take care of them, being too few to merit notice as a separate section of society, or to affect a general estimate. The great mass of our population is of laborers; our rich, who can live without labor, either manual or professional, being few, and of moderate wealth. Most of the laboring class possess property, cultivate their own lands, have families, and from the demand for their labor are enabled to exact from the rich and the competent such prices as enable them to be fed abundantly, clothed above mere decency, to labor moderately and raise their families. . . . The wealthy, on the other hand, and those at their ease, know nothing of what the Europeans call luxury. They have only somewhat more of the comforts and decencies of life than those who furnish them. Can any condition of society be more desirable than this?11

The Politics and Economics of Inequality

US historians have often boastfully quoted Alexis de Tocqueville’s observation of “the equality of conditions” in the United States in the 1830s. US culture has always emphasized equality rather than difference. Politicians, especially wealthy politicians, claim that they share the same social and cultural values of the average citizen, even if they do not share the same tax bracket. Indeed, de Tocqueville believed that the Americanization of the world in terms of the ever-increasing equality of conditions was inevitable. He realized that the creation of democratic forms of government was not the end of the struggle, but that democracy’s creation was a continuous process, and he believed that inevitably the rest of humanity would finally arrive at an almost complete equality of conditions like the United States. He noted, however, a growing “aristocracy of manufacturers” who had no sense of public responsibility and whose aim was to use the workers and then abandon them to public charity. He believed that the manufacturing aristocracy “is one of the harshest which ever existed in the world. . . . [T]he friends of democracy should keep their eyes anxiously fixed in this direction; for if ever a permanent inequality of conditions and aristocracy again penetrate into the world, it may be predicted that this is the channel by which they will enter.”12 The point is that the United States did not move away from Jefferson and de Tocqueville’s observation of a society that was remarkable in its egalitarian nature just by happenstance. The United States would not inevitably become more unequal than the European societies against which the colonists rebelled. Market forces encourage inequality and, as Keynes points out, often arbitrary outcomes. Government policies are at least as important in shaping inequality as market forces. Writing a century later, John Maynard Keynes pointed out that one could hardly expect business to act on behalf of the well-being of the workers, let alone the entire society. He noted that, in democracies, the government has the responsibility to protect the economic well-being of the nation. The main failure of capitalism, according to Keynes, is its “failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes.”13 In a market economy some inequality is an inherent part of the reward process for hard work and innovation. However, problems arise when lack of equal opportunity prevents those rewards from being available to everyone. What was required, he said, was collective management of the system that would be as efficient as possible without offending our notions of a satisfactory way of life. What then is a socially acceptable amount of economic inequality?

Economic Crises Force New Public Policy Responses Though US political institutions declare the equality of citizens, capitalism creates economic and social inequalities. The disparity between presumed equal rights and

147

148

Public Policy

economic inequality creates tension between capitalism and the principles of democracy. Owners of capital may use money or their position of power in imperfect markets to deny others a minimum standard of living. Beginning in the Progressive Era and reaching a high point during the administrations of Franklin D. Roosevelt and Lyndon B. Johnson, democratic institutions were used to keep market excesses within acceptable limits. The minimum wage, the eight-hour day, Social Security, trade union legislation, civil rights, women’s rights, a progressive federal income tax, and civil service reform based on merit rather than a spoils system were all achieved over the vigorous opposition of business interests, which were concerned that such benefits to workers would reduce profits. The American Dream was reinforced by the notion that business prospers when workers are paid wages sufficient to allow them to buy what they produce. The United States prospers as “one nation, indivisible” when workers are paid wages that allow a “middle-class” income. A broad middle class contributes to prosperity for all. Government responsibility to narrow the gap between rich and poor was largely accepted by liberals and conservatives alike after the New Deal. Others sought to preserve equality of opportunity by opposing any alliance between government and business elites. Efforts to keep business and government from colluding, and the unsteady progress by reformers in advancing the American Dream of equality, were seriously challenged in the 1980s by a resurgence of conservatism under President Ronald Reagan. Supply-side economic thinking defended economic inequality as a source of productivity and economic growth. Many of those most adversely affected by the economic changes did not respond with anger toward those primarily responsible for their economic decline. Rather than focusing their anger on the corporate and financial elite derided by Roosevelt as “economic royalists” and “malefactors of great wealth,” they identified their antagonists as “liberals.” Conservative strategists successfully cast the problem as “cultural” rather than “economic.” Activists, with the support of conservative think tanks, pundits, lobbyists, ministers, and right-wing radio talk show hosts, provided a smoke screen that shielded the dismantling of middle- and working-class protections while they added fuel to their anger against liberals. In a recent study titled What’s the Matter with Kansas? Thomas Frank analyzed how many vulnerable US citizens have been persuaded that cultural issues override economic issues and have been influenced to vote against their economic and social interests.14 Political liberals are portrayed as waging cultural warfare against a fundamentally Christian culture, perceived as the basis of US society. Conservatives argue that this battle is one to determine whether US culture as it has been known can be saved. On issue after issue, they feel threatened: gay marriage, abortion rights, the Pledge of Allegiance, prayer in schools, and the promiscuity portrayed in movies and television programming, to name just a few.

The Politics and Economics of Inequality

In the 2004 elections, many among the economically disadvantaged provided critical support to politicians who then acted against the poor’s economic interest. These politicians implemented policies that increased the gap between the disadvantaged and the affluent. Typically, US voters are aware of the downside of economic inequality but often vote on the basis of noneconomic issues like crime, abortion, or immigration.15 More cynical regarding government, the poor are less likely to register and to vote. As labor organizer Oscar Ameringer observed, in such a scenario, politics becomes the art of winning votes from the poor and campaign contributions from the rich through promises “to defend each from the other.” The richest 3 percent of the voting population accounts for an estimated 35 percent of all private campaign contributions during presidential elections.16 Political campaigns increasingly rely on professional managers, constant polling of focus groups, and expensive television advertising to test and make appeals to voters. The wealthy are inclined to contribute money to those candidates that endorse reductions in social welfare programs, taxes, and government regulation of business. They are very aware of the benefits of economic inequality for themselves, and when they contribute to political candidates, they focus clearly on the goal of protecting their economic status. Elites’ contributions give them greater political influence than less affluent voters. The process results in economic policies that add to elites’ share of total wealth and income, an outcome at variance with theories of democracy. The alliance between government and the rich (the US equivalent of the aristocrats’ relationship to King George III), so long feared by the reformers, has been realized.

Income Distribution and the Widening Gap No established theory of income distribution exists to guide us to an acceptable amount of inequality. Income is defined as the total monetary return to a household over a set period, usually a year, from all sources, including wages, rent, interest, and gifts. Labor earnings (wages) constitute an ever-larger component of total income as one moves down the income ladder. Income tends not to be as unequally distributed as wealth. Income is a flow variable while wealth is a stock variable concentrated in the assets of a few families. Income inequality threatens the political stability of many developing countries. Even in a wealthy country like the United States, great inequality in income and wealth is a social problem and, therefore, an issue for the policy agenda. A society that cares about maximizing the welfare of all its members may consider that social welfare for low-income individuals (for whom the marginal utility of an extra dollar is high) would be improved by transferring a dollar from a highincome person (for whom the marginal utility of having one less dollar is low).

149

150

Public Policy

Whether government should reduce great inequality between the rich and poor is the focus of debate. The concept of liberty and egalitarianism has been a cornerstone of US social and political culture. Liberty, protected by government as the pursuit of one’s own self-interest, permits individuals to acquire material goods according to their circumstances and abilities. The result has been a vast disparity in income and wealth. One hears a great deal about political equality, which typically means that individuals are equal before the law, and that regardless of ability or income, each has the right to vote. This narrow, technical political equality is often assumed to be the significant type of equality in the United States; therefore, the broader implications of economic inequality are generally disregarded or minimized. Most countries of the Western world have policies designed to reduce the differences between rich and poor based on a consensus that the role of government should not be to widen the gap between rich and poor but rather to reduce it. How has income distribution changed? Between 1935 and 1975, a period known as the Great Compression, a clear trend could be seen toward a more equal distribution of income in the United States, primarily because of four factors: 1. Policies to end the Great Depression and a wartime economy provided full employment, significantly raising the wages of labor. 2. During World War II, a more progressive income tax and excess-profits taxes reduced the relative after-tax income of the rich more than that of the poor. 3. Labor scarcity during the war reduced discrimination against minorities and increased economic opportunities for them. 4. Union membership quadrupled and increased the relative income of laborers. In the decade between 1945 and 1955, the trend toward greater equality continued at a much slower pace as unions met more resistance after the war, such as the passage of the Taft-Hartley Act. From 1955 through about 1975, the distribution of income remained relatively constant. Since then, inequality in income has increased. After 1980, the gap between pay for higher- and lower-wage workers accelerated, particularly among men.17

Income Distribution and Poverty To begin thinking about an optimal distribution of income, one should examine how income is currently apportioned throughout society. We begin by examining income inequality, in which the share of total income that is received by various segments of the community is measured. The Census Bureau conducts a survey each year to determine the income received throughout society. The findings are reported in the Current Population Survey, in

The Politics and Economics of Inequality

which the “money income” for US households is calculated. Money income, calculated on a pretax basis, essentially includes all the income a household receives, including wages and salaries, rent, royalties, capital gains, interest, dividends, pensions, Social Security payments, disability payments, and unemployment compensation. It does not include the value of noncash government benefits such as food stamps or rental subsidies. The data also exclude the monetary value of nonwage fringe benefits like employer contributions to health care packages or pension programs. The Census Bureau divides the society into fifths, with households ordered from lowest to highest money income populating the appropriate quintile. Income within each quintile is added, and its percentage of the total household income is calculated. If income were equally divided, each quintile would have 20 percent of the total money income. The degree to which each quintile deviates from 20 percent is a measure of the inequality in income distribution. Table 6.1 displays the share of total income that is received by each quintile over time. As has already been noted, since about 1980 the benefits of growth in the national economy began accruing more unequally across US households. For example, in 1980, the bottom 20 percent received 4.3 percent of the aggregate income while the top quintile received 44.1 percent. But by 2012, the bottom quintile’s share declined to 3.2 percent (a 24 percent decline) while the top quintile received 51.0 percent of all income (a 14 percent increase). The collective share of the bottom four quintiles fell from 56 percent of total income to 48.9 percent while the top quintile’s share expanded an equivalent amount from 44 percent to 51 percent. That is, just over half of all income in the United States goes to the richest 20 percent of the population. While no official definition exists of middle class, the middle 60 percent is sometimes loosely regarded as middle income.18 Between 1980 and 2011, the middle class’s share of income also fell from 51.7 percent to 45.7 percent (a 12 percent decline). The table shows that income inequality increased significantly between 1980 and 2011. The top 5 percent increased its share by almost 28 percent (from 16.5 percent to 22.3 percent). Note that the bottom 20 percent of workers have just 3.2 percent of the nation’s income to divide among themselves while the top 5 percent divide over 22 percent of the nation’s income among themselves. Table 6.2 illustrates what the shares going to each quintile mean in terms of constant 2011 dollars. It also shows that, as income increases, the income at the higher quintiles rises at a faster rate, thus inequality is accelerating. Note that in 1980, the average of the highest fifth was over ten times that of the lowest fifth, but by 2011 the average for the highest fifth was almost sixteen times (15.8) that of the lowest fifth. Also in 1980, the top 5 percent had an income that was sixteen times the bottom fifth, which grew to 27.7 times the average of the bottom fifth by 2011. In the thirtyone years from 1980–2011, the bottom fifth increased their real annual income by $38, a negligible sum, while the fourth fifth increased their income by a larger amount than the entire year’s income for the bottom fifth. This severe imbalance is

151

152

Public Policy

Table 6.1 Share of Aggregate Income Received by Each Quintile and Top 5 Percent of Households, 1980–2012 (percentages) Income Quintile

1980

1990

2000

2005

2012

Lowest 20% Second 20% Third 20% Fourth 20% Highest 20% Top 5%

4.3 10.2 16.8 24.7 44.1 16.5

3.8 9.6 15.9 24.0 46.6 17.6

3.6 8.9 14.8 23.0 49.8 21.0

3.4 8.6 14.6 23.0 50.4 22.2

3.2 8.3 14.4 23.0 51.0 22.3

Source: Data compiled from US Census Bureau, Historical Income Tables—Households, Current Population Survey, tab. H-2, http://www.census.gov/hhes/www/income/data/historical/index.html, accessed April 4, 2014.

Table 6.2 Mean Household Income Received by Each Quintile and Top 5 Percent of Households, 1980–2011 (in constant 2011 dollars) Year

Bottom Fifth

Second Fifth

Third Fifth

Fourth Fifth

Highest Fifth

Top 5 Percent

1980 1990 2000 2005 2011

11,201 11,954 13,266 12,275 11,239

27,877 30,077 33,123 31,517 29,204

46,000 49,680 55,158 53,342 49,842

67,770 74,903 85,746 83,900 80,080

120,834 145,360 185,810 183,852 178,020

180,571 231,470 329,647 323,912 311,444

Source: US Census Bureau, Historical Income Tables—Households, Current Population Survey, tab. H-3, http://www.census.gov/hhes/www/income/data/historical/index.html, accessed April 4, 2014. Note: The upper limit for each fifth in 2011 was in the lowest, $20,262; second, $38,520; third, $62,434; and fourth, $101,582. The lower limit of the top 5 percent in 2011 was $186,000.

one of the reasons that the United States has the highest level of inequality of any of the advanced countries. In the economic “recovery” of 2009–2010, the top 1 percent of income earners in the United States captured 93 percent of the income growth.19 The movement toward an increasing concentration of income and wealth at the top, the hollowing out of the middle, and increasing burdens of poverty at the bottom is the clear direction of the once-egalitarian society. Tables 6.1 and 6.2 actually understate the chasm between those at the top and the bottom. A study by G. Ross Stephens reported income distribution by focusing on adjusted gross income (AGI).20 He found that only those people with tax returns at the top 10 percent of AGI increased their shares of income since 1980. The share of losses increased as people descend the income scale.21 Although the federal

The Politics and Economics of Inequality

153

income tax has been mildly progressive, changes in tax rates and in the mix of taxes, such as payroll taxes, and especially state and local taxes, have downgraded the federal income tax as the most important source of government income. Specific types of income not included in AGI, such as gifts, inheritances, and salary deferrals (i.e., contributions to flexible spending plans and 401k retirement plans), obviously reduce the progressivity of the income tax.22 Another way to consider income distribution and poverty is to analyze the amount of money necessary to provide an individual or a family with a minimally adequate level of income. When President Johnson declared the “War on Poverty” in 1964, he adopted an absolute standard of poverty based on a standard put forward by Mollie Orshansky, an economist working for the Social Security Administration. Orshansky based her standard on a finding by the Department of Agriculture indicating that most families spent about one-third of their income, after taxes, on food. Four budgets were provided for a diet for families after adjusting for family size, gender of the family head, the number of children under eighteen years of age, and farm or nonfarm residence. The government chose the least costly “minimum but adequate diet” and multiplied the diet by three to determine the threshold below which families were considered to lack the resources to provide for the basic needs of food, clothing, and shelter to maintain health. Absolute poverty, often referred to as extreme poverty, is useful for comparison across time and location while relative poverty represents a specific time and place. One might feel relatively poor when living in an affluent neighborhood despite earning an income well above the absolute poverty level. The guidelines have been used by the federal government ever since and have simply been updated to account for inflation, as noted in Table 6.3.

Table 6.3 Federal Poverty Guidelines by Family Size, 2014 Size of Family Unit 1 2 3 4 5 6 7 8

100% of the Federal Poverty Level (annual) $11,490 $15,510 $19,530 $23,550 $27,570 $31,590 $35,610 $39,630

Source: Health and Human Services, “Federal Poverty Guidelines by Family Size, 2014,” January 22, 2014, http://aspe.hhs.gov/poverty/14poverty.cfm. Note: For each additional person, add $4,020.

154

Public Policy

Relative vs. Absolute Poverty Some critics claim that poverty in this country is only relative. They indicate that some of the poor in Bangladesh would find their standard of living high if they could be poor in the United States. Therefore, the argument goes, the poor in the United States are only relatively poor, not absolutely poor, when compared to the poor in some countries. However, people usually measure their living standards by what others in their country have. Being in relative poverty is usually defined as having significantly less access to income and wealth than most members of a given society. A direct link consequently develops between income inequality and relative poverty. The point is that an individual’s sense of well-being is not merely the individual’s absolute income but the person’s income relative to others. Conservatives in the United States have opposed the use of relative definitions of poverty because progress would be extremely difficult to demonstrate. For example, suppose the poverty level was defined as including all those with incomes in the bottom fifth of the country. Then, even if everyone’s income increased by 20 percent, the bottom 20 percent would still remain in poverty by that very definition of poverty, no matter how much greater their income. According to the federal poverty guidelines shown in Table 6.3, a family of three with an annual income of $19,550 is officially above the federal poverty line, even though that family would feel poor. Additionally, a worker employed at the minimum wage of $7.25 an hour who works fifty weeks a year with two weeks off at no pay would earn $14,500, a number that is barely above the poverty level for a single person ($11,490 in 2014) and below the poverty level for a two-person family. Such an income is hardly sufficient to support an individual, though a single worker would not officially be in “poverty.” The most recent figures available indicate that, as of December 2013, over 45 million people in the United States (15 percent of the population) are below the federal poverty level.23 Criticism of the absolute standard of poverty, or a standard of poverty that revolves around a hard and fast number, has grown over the years. For example, the price of food has declined from a third of the average family budget to just over 20 percent. Thus, the formula could understate poverty since food is a smaller portion of the average budget. Some have suggested that the cost of an “average” market basket of goods might provide a more accurate measure. The federal definition does not take regional differences in the cost of living into account. Food and housing, for example, would both cost more in Massachusetts than in Mississippi. Finally, the absolute definition excludes noncash transfers such as Medicaid or food stamps. Adding the value of government assistance through food stamps or health care would raise the income level of many and result in a reduced defined level of poverty in the country.

The Politics and Economics of Inequality

Cross-country comparisons of income distributions with other developed democracies of the Organisation for Economic Co-operation and Development (OECD) provide a context to consider the US situation (see Table 6.4). Various studies have found that the gap between rich and poor widened in most OECD countries between the mid-1980s and 2008. Nordic and Central European countries have the lowest inequality of income. In Norway, Belgium, Denmark, Finland, and Sweden the income gap between the richest 10 percent and the poorest 10 percent (called the p90/p10 ratio) is six to one. The gap between the richest and poorest 10 percent in Switzerland, France, the Netherlands, and Germany is about seven to one. The United States with an inequality of about fifteen to one is well above the OECD average of a nine-to-one income gap between the richest and poorest 10 percent. The United States as the wealthiest nation has an income gap that is more closely associated with poorer countries like Turkey and Mexico.24 The Gini coefficient ranges from 0 (perfect equality) to 1 (perfect inequality). Only Mexico has a higher Gini index than the United States, and Mexico and the United States are tied with the bottom 20 of their respective populations. The OECD report found that The earnings of the richest 10% of employees have taken off rapidly, relative to the poorest 10% in most cases. And those top earners have been moving away from the middle earners faster than the lowest earners, extending the gap between the top and the increasingly squeezed middle-class. . . . New data for the United States, for example, show that the share of after tax household income for the top 1% more than doubled, from nearly 8% in 1979 to 17% in 2007. Over the same period, the share of the bottom 20% of the population fell from 7% to 5%.25

The OECD study found that increasing inequality has started to unravel the social contract in countries where the young no longer see a future for themselves and feel increasingly disenfranchised. Resentment has developed among those who feel they are bearing the brunt of a crisis for which they had no responsibility while those at the top have been spared. The study also noted that social mobility is lower in nations with higher inequality such as the United States. Why did wage inequality expand so rapidly in the United States during the past quarter century? Several policies contributed to the reversal of the Great Compression discussed earlier in this chapter. Since the Reagan administration, enforcement of antitrust laws has been given a low priority. Mergers of large corporations have become a method for concentrating wealth. Chief executive officers (CEOs) and senior executives receive huge payouts when two companies merge. The pay gap between more highly educated workers and workers with less education has increased. Those with more human capital can demand more for their more highly skilled labor, which pushes up pay levels. Highly educated (or skilled)

155

156

Public Policy

Table 6.4 Distribution of Income by Quintile for Selected OECD Countries, 2012 Income Quintile Country Austria Belgium Canada Denmark Finland France Germany Greece Hungary Italy Mexico New Zealand Norway Poland Sweden Turkey United Kingdom United States

Gini Index

Lowest

Second

Third

Fourth

Highest

29 33 33 25 27 33 28 34 31 36 47 36 26 33 25 40 36 41

9 9 7 8 10 7 9 7 8 7 5 6 10 8 9 6 6 5

13 13 13 15 14 13 14 12 13 12 9 11 14 12 14 11 11 11

17 16 17 18 17 17 18 17 17 17 13 16 17 17 18 16 16 16

23 21 23 23 22 23 23 23 22 23 20 23 22 22 23 22 22 22

38 41 40 36 37 40 37 41 40 42 53 44 37 41 37 46 44 46

Source: World Bank, 2012 World Development Indicators, April 2012, http://wdi.worldbank.org/table/2.9, accessed March 25, 2014. Year of surveys varied between 2000 and 2011.

workers are often in a more inelastic supply position, and rising demand forces up their wage rate. Generally, demand for more highly educated workers in a more technical age has also fueled an increase in the demand for college graduates. For most in the United States, successive federal tax cuts were actually tax shifts that redistributed after-tax income from the bottom to the top quintile, exacerbating the inequality between the rich and everyone else. The federal government has concentrated on eliminating estate taxes and reducing taxes for the wealthy while ignoring social safety net policies for the poor, like raising the minimum wage or providing more funds for housing the poor. Also, historically, an increase in worker productivity resulted in a similar increase in income for the average worker. Technological innovations now allow machines to perform many tasks that were previously performed by less educated workers. Machines, robots, and computers have reduced the demand for workers ranging from bank clerks, workers on automobile assembly lines, and retail clerks. More products and services can be produced using fewer low-skill workers, while those with the technical skills to manage the robots and machinery receive much

The Politics and Economics of Inequality

larger rewards. Not only those who work in manual labor but also those who work in the area of entertainment have suffered. The winner-take-all nature of society made possible by communication advances has allowed individuals to listen to or see the best artists, athletes, and entertainers perform while destroying the market for those with only slightly less talent or those without the “right connections.”26 Perhaps globalization, defined as worldwide integration and development, and international trade are a partial explanation for growing income inequality. International trade has made it easier for producers to outsource the manufacture of goods to countries where the wage rates are much lower, but others posit an offsetting rise in the demand for services that cannot be outsourced. So undoubtedly, free trade does exert a downward pressure on US wages, but some scholars are skeptical that it is a major cause of rising inequality.27 Paul Krugman observed that, if technology and globalization are the driving forces behind inequality, “then Europe should be experiencing the same rise in inequality as the United States.”28 However, the European experience is very different, in that unions remain strong and the tendency to condemn excessive pay for management is still strong. The rising inequality that is especially notable in the United Kingdom and the United States, Krugman concluded, is not based on technology or globalization, but on changing institutions and norms. In particular, Krugman cited the collapse of the US union movement.29 The norm that has changed in the United States is the gradual acceptance of excessive pay at the top of the pay pyramid, which reflects social and political change rather than the invisible hand of the market. A conflict of interest is built into the determination of pay at the top of the scale. Corporate boards, largely selected by CEOs, hire compensation “experts” also chosen by CEOs to determine how much they and senior board members are worth. Those evaluating a CEO’s worth to the firm can be counted on to be duly impressed with the extraordinary capabilities of the entire board if they entertain any hope of being hired for future evaluations.

Inequality of Wealth and Income Most people in the United States have only vague notions about just how concentrated the distribution of wealth in this country actually is. First, a distinction must be made between income and wealth. Income was defined above as a person or household’s total income from wages, rent, dividends, royalties, and so on, essentially any form of cash income usually measured on an annual basis. Wealth refers to the monetary value of a person or household minus its liabilities (or debt), which is its net worth. Wealth is usually defined in terms of marketable assets, such as stocks and bonds and real estate, and ignores such durables as cars and household items that may not be as easily converted into cash and may be more for use by the owner than

157

158

Public Policy

for resale. Wealth includes the accumulation of unspent past income and is a source from which capital income is realized. An examination of wealth provides a more complete picture of family economic well-being than does an examination of income. Power also flows from wealth. Fortunes can be a source of political and social influence that goes beyond having a high income. A correlation, although not a strong one, can be found between wealth and age since older individuals typically have worked more years and have accumulated more assets. A correlation also exists between income and wealth in that we expect those with high incomes to have more wealth.30 Since about 1980, both poverty and wealth have been increasing together, indicating that the distance between the rich and poor is widening. The focus is often on the top 1 percent because that group is the usual definition of “the top.” But one should keep in mind that the lower half of the top 1 percent is quite different than those in the top half of that 1 percent. In fact, wealth and income are much more concentrated in the top 0.1 percent (one in a thousand). Table 6.5 below lists the dollar amounts associated with different income and wealth levels. Edward Wolff did a study using the Federal Reserve Board’s triennial Survey of Consumer Finances and analyzed the amount of total household wealth accruing to various segments of the society. In 2010, the most recent year for which data are available, the top 1 percent of households owned over one-third (35.4 percent) of all privately held wealth, up from 33.4 percent in 2000. The next 19 percent, rounding out the top quintile, owned 53.5 percent. In other words, the top 20 percent of the people divided 89 percent of the privately held wealth among them.31 The share of assets for those in the bottom 80 percent of the population declined while only the top 6 percent (95th to 100th percentile inclusive) saw their share of ownership increase. The largest gains went to those in the top 1 percent. As Table 6.6 indicates, the families in the bottom half of families in the country have seen their meager share of 3.9 percent of the nation’s wealth in 1989 decline to just 2.6 percent of the nation’s wealth in 2010.

Table 6.5 US Mean Household Income and Wealth (in 2010 dollars) Income Level Top 1% Top 20% 60–80th percentile 40–60th percentile Bottom 40%

Mean Household Income $1,318,200 $226,200 $72,000 $41,700 $17,000

Mean Household Wealth $16,439,400 $2,061,600 $216,900 $61,000 –$10,600

Source: Edward N. Wolff, The Asset Price Meltdown and the Wealth of the Middle Class (New York: New York University, 2012). Data collated from Table 4, p. 60.

The Politics and Economics of Inequality

159

Table 6.6 US Distribution of Wealth, 2001–2010 Year 2001 2004 2007 2010

Gini Coefficient 0.826 0.829 0.834 0.870

Top 1%

Top 20.0%

4th 20.0%

33.4 34.3 34.6 35.4

84.4 84.7 85.0 88.9

11.3 11.3 10.9 9.4

3rd 20.0% Bottom 40.0% 3.9 3.8 4.0 2.6

0.3 0.2 0.2 –0.9

Source: Edward N. Wolff, The Asset Price Meltdown and the Wealth of the Middle Class (New York: New York University, 2012), p. 58.

The bottom 40 percent collectively have no net worth: their debts exceed their assets. Note that only the top 20 percent saw their share of wealth grow since 2001. If one combines the top 1 percent’s share (35.4 percent) with the next 4 percent (27.7 percent), one finds that the top 5 percent own 63.1 percent of the nation’s wealth, more than the remaining 95 percent of all households.32 The bottom 80 percent of the population saw their share of wealth decline. However, what is most troubling is that the concentration of wealth in fewer and fewer hands is accelerating. The highly skewed distribution of wealth in the United States has finally attracted the attention of some scholars and progressive politicians, but the average citizen has no idea that wealth in the United States is as concentrated as it is. Michael Norton and Dan Ariely completed a fascinating study in which they asked respondents what their ideal distribution of wealth would be.33 Most respondents thought the distribution should be more equal than it is, but most thought the ideal distribution would be one in which the top 20 percent would own between 30 and 40 percent of all privately held wealth, much less than the 89 percent the top 20 percent actually own. They also thought that the bottom 40 percent should own between 25 and 30 percent, far more than the 0.9 percent they actually owned. The responses suggest that most of those surveyed, regardless of gender, age, or income level, are more egalitarian in their values than the reality of wealth distribution in the United States, but they have no idea of the economic reality of those at the top and bottom. Without the US public being better informed on the issue, little pressure will ever be applied to seriously pursue policies to reduce economic inequality. Figure 6.1 illustrates the perceived actual, estimated, and ideal distributions of wealth.

Public Policies to Reduce Inequality The period of increasing income inequality since 1980 represents a break from the broadly shared economic gains in the first thirty-five years following World War II, when the growth rate was slightly tilted toward lower-income workers. The more

160

Public Policy

Figure 6.1 Actual, Estimated, and Ideal Distribution of Wealth

Actual distribution of wealth Top 20% 2nd 20% How Americans think wealth is distributed Middle 20% 4th 20% How they would like it to be

Bottom 20%

Source: Michael I. Norton and Dan Ariely, “Building a Better America—One Wealth Quintile at a Time,” Perspectives on Psychological Science 6, no. 1 (2011): 9–12, http://www.people.hbs.edu/mnorton/norton%20ariely %20in%20press.pdf.

recent concentration of growth at the top at the expense of lower-income workers is a cause for concern for policymakers. Recent policy research by the International Monetary Fund found that “more-equal societies have stronger rates of growth, experience longer economic expansions, and are quicker to recover from economic downturns.”34 Increasing inequality results in societies being more vulnerable to financial and political instability. Greater disparities of wealth and power impair the democratic system and public trust and lead to a breakdown in the unity of the society. The problem for policymakers then is how to reduce income inequality. Several policy instruments can contribute to the solution of the problem. Increase the Progressivity of the Federal Income Tax

The most obvious policy and the most easily quantifiable is increasing the progressivity of the federal income tax. Tax policy is particularly well suited to curbing the upwardly skewed income distribution. Making the federal income tax more pro-

The Politics and Economics of Inequality

gressive would also complement congressional goals to reduce the deficit. Data discussed above indicate that US income distribution is closer to the most unequal of the OECD countries rather than the more egalitarian wealthier countries as measured by the Gini index. We have indicated that reduction in top marginal income tax rates has encouraged rent-seeking behavior by corporate and financial executives to gain a larger share of total income, without changing the overall size of the pie being divided. Rent seeking occurs when an individual or company tries to get a return on an investment in excess of what is needed to keep it in service, frequently by manipulating the political or economic system. Consequently, raising the top marginal tax rate could yield large reductions in market-based income inequality without reducing productive income activity. Because of anticipated conservative opposition to direct tax increases, capping or limiting deductions above certain levels may be easier to achieve.35 One economic argument in support of raising the progressivity of the federal income tax is based on the premise of the diminishing marginal utility of income, a term that refers to the proposition that each additional dollar of income provides less and less utility than the first dollar. For example, an additional dollar of income provides less utility (satisfaction) to someone earning $250,000 per year than to the utility of someone who earns $20,000 per year. Assuming the rule of diminishing marginal utility is correct, the overall well-being of society should be increased by transferring money from those with high incomes to those with low incomes, since the loss in utility for the high-income person will be less than the gain in utility for the low-income person. Raise the Federal Minimum Wage

A higher minimum wage would narrow the distribution of labor income. The national minimum wage, currently set at $7.25 per hour, is the lowest hourly wage that employers may legally pay to most workers (some workers are exempt). It is, conversely, the lowest wage at which most workers may legally sell their labor. The minimum wage was first proposed as a way to prevent employers from paying substandard wages to workers due to the fact that employers often have an unfair advantage when negotiating the terms of employment, particularly with low-skilled workers. A federal minimum-wage law was first passed in the United States in 1938, when it was set at $0.25 per hour. The minimum wage has varied from a maximum of 90 percent of the poverty level in 1968, but since 1980 it has tended to hover between 55 percent and 60 percent of the poverty level. President Obama has proposed raising the minimum wage to a little above $10 an hour. Many critics of a mandated minimum wage point out that classical economic theory concludes that mandating a minimum wage above the equilibrium wage will cause unemployment to rise because a greater number of workers will be supplied

161

162

Public Policy

at the higher wage while employers will reduce their demand for labor at the higher cost. Those workers who are hired at the higher wage will be helped, but the lowestskilled workers who lose their jobs as employers reduce employment will be hurt. Firms hold a considerable degree of wage-setting power because more potential workers will always likely be available than jobs. The employer has an information advantage regarding employment needs and the labor supply. Wages, particularly at the low end of the scale where the labor supply (and therefore competition) is greatest, allow an employer to set compensation below the workers’ marginal value to the firm, which may happen when the unemployment rate rises above about 4 percent. At full employment, workers’ bargaining power is increased because the firm has a smaller supply of available workers to choose from, which forces employers to raise wages closer to the marginal value of the workers’ contribution. In the political battle over “guest worker” programs or the presence of “undocumented workers,” firms do not randomly side with the position that will increase the available supply of workers to provide downward pressure on wages. Dozens of empirical studies have found that raising the minimum wage has little or no discernible effect on the employment prospects of low-wage workers.36 Various explanations range from the obvious, like raising wages may reduce worker turnover and training costs, to the claim that the minimum wage is set so low that it represents such a small part of business costs that the increase is too small to make a significant difference. Paul Krugman stated that studies that have found no evidence that raising the minimum wage results in job losses have been attacked “because it seems to contradict Econ 101 and because it was ideologically disturbing to many. Yet it has stood up very well to repeated challenges, and new cases confirming its results keep coming in.”37 Workers do not lose their jobs when the minimum wage is raised because the marginal productivity of workers is higher than the minimum wage rate. Employers do not lay off workers regardless of the higher cost. Still, unless forced, employers have no incentive to raise workers’ low wages, as the increased cost of higher wages reduces employer profits, explaining why employers always oppose raising the minimum wage. Encourage Labor Unions

Countries with strong unions tend to have less inequality. Weaker unions, by contrast, give corporate CEOs more chances, often working with market forces they helped mold, to increase inequality. Whether one is considering the strength of unions or the discretion of corporate management, the government is critical in setting labor policies that encourage or discourage unions. Weak unions lead to reduced social cohesion among workers, which strengthens the hand of manage-

The Politics and Economics of Inequality

ment to run corporations for their own benefit, resulting in a reduced share of wages for lower- and middle-income workers. The policies of Ronald Reagan led to greater income disparities between management and workers. After 1980, the pay differential for higher- and lower-paid workers accelerated, particularly among men.38 In 1981, during a strike by air traffic controllers, Reagan fired 11,000 of the striking workers and imposed a lifetime ban against rehiring any striking members of the union. Shortly afterward, the Federal Labor Relations Board decertified the Professional Air Traffic Controllers Organization (PATCO). Reagan argued that his action against the air traffic controllers was justified because federal workers were not allowed to strike under the law. After PATCO, several private companies imitated Reagan’s actions by refusing to negotiate with unions and replacing strikers rather than bargaining with them.39 Without the leverage of threatening strikes that unions once exercised, unions have little ability to pressure employers to negotiate wage increases proportional to productivity increases. Profits and executive pay have risen dramatically while labor’s wages have not kept up with inflation despite productivity gains. Conservative governors such as Scott Walker of Wisconsin stripped public unions in that state of the right to bargain collectively for anything but cost-of-living adjustments to salaries.

The Living-Wage Concept In addition to the minimum federal wage, eighteen states and the District of Columbia have minimum-wage floors above the national requirement. Many cities also have “living-wage” ordinances, which typically mandate a wage floor to workers in a particular sector.40 The concept of a living wage refers to a minimum hourly wage necessary for a person working full-time to afford a specified standard of living that would include adequate shelter, food, utilities, health care, and transportation. It differs from a minimum wage, which is not expected to equal a specific standard of consumption. The living-wage concept was put forward by Pope Leo XIII in an 1891 document titled Rerum Novarum (literally, “Of New Things”) in which he attempted to navigate a middle course between the harshness of laissez-faire capitalism and the suffocating aspects of state-run communism.41 Rerum Novarum was an open letter in which Pope Leo criticized the “greedy excesses of capitalism” in which many saw the Darwinian struggle for the “survival of the fittest” playing out in the clash between the owners of wealth against the masses. The struggle would lead logically and inevitably to the domination and repression of the laboring classes by the financiers. In his letter, Pope Leo reaffirmed the right of private property and its protection by the state while also affirming the right of the state through regulation to

163

164

Public Policy

require a living wage in the interest of the common good. He criticized such evils as excessive hours of labor, including labor on Sundays, child labor, low wages, and unhealthy and dangerous working conditions. The letter supported the right of workers to form unions and bargain collectively to improve their condition. Rerum Novarum laid the foundation for a greater stance by the Catholic Church regarding workers’ rights throughout the world to eliminate child labor, reduce the workweek, improve worker conditions, and establish minimum, if not living, wages. The minimum wage and a living wage have several appealing attributes as public policy. Primarily, they raise the standard of living for the lowest-wage workers while motivating employees to work harder. Second, they do not have any budgetary consequences for the government since the government does not need to use tax revenue to pay for them. By putting more money in the hands of lowincome workers, inequality is reduced while stimulating demand. As stated above, twenty-one states and the District of Columbia now have established a wage rate higher than the federal minimum, and over 130 million people now work in jobs with a mandatory minimum wage above the federal floor. However, state standards are not as high as living-wage rates in municipalities where the cost of living is higher.42

Immigration Policy and Inequality By demographically increasing the supply of less educated workers, immigration has contributed to downward pressure on wage rates at the lower end of the scale. In the early 1970s, around 5 million foreign workers made up 5 percent of the labor force. By 2007, increased immigration, particularly from Latin America, resulted in the immigrant population making up about 16 percent (approximately 25 million workers) of the labor force.43 Although many immigrants are highly educated and highly skilled workers, most come from less developed countries and are likely to be less educated than the average US worker. Roughly a third of the immigrant workers are high school dropouts and, therefore, compete primarily against other low-income workers in the US labor pool. Overall, foreign workers earn less than most low-wage US workers and may depress those wages by up to 10 percent. However, for immigrants, low wages by US standards are preferable to unemployment or even lower wages in their native countries, and although they are a labor safety valve in their native countries, they increase income inequality in the United States. In contrast, Krugman has argued that the downward pressure on wages for low-income US workers may be overstated, and the real immediate political effect of immigration is political.44 Many conservative business leaders favor immigration because it provides a large supply of low-cost, docile labor. Wages can be kept low by employers threatening to hire from the abundant supply of cheap immigrant

The Politics and Economics of Inequality

labor, if US workers press their demands too aggressively. Many white workingclass voters, who left the Democratic Party after the enactment of civil rights legislation during the Johnson administration, are still influenced by appeals to race and are suspicious of foreign nationals. The result is a split within the conservative coalition over immigration policy. The anti-immigrant wing of the Republican Party has driven many Hispanics into the Democratic Party.

The Bias in Favor of Equality How much inequality a society will permit is largely a matter of public choice, and growing inequality has become a politically charged topic in recent years, raising the question of what public policy should do about it. Some conservatives argue that significant economic inequalities do not necessarily have policy implications. They argue that the wealthy are inclined to invest their money, which creates jobs and contributes to faster economic growth. Conservatives accuse liberals of fomenting class warfare when they point to the growing inequality of income and wealth in society. Others see highly unequal economic outcomes as a serious threat to society’s political, social, and economic well-being. They argue that inequality of income causes spillover effects into the quality of life, even for those not necessarily in poverty. Wide economic disparities result in frustration, stress, and family discord, rising crime rates, violence, and homicide. Robert Putnam has suggested that the breakdown of social cohesion brought about by income inequality threatens the functioning of democracy. He found that low levels of civic trust spill over into a lack of confidence in government and low voter turnout at elections.45 Too much inequality could lead to a cycle in which lack of trust and civic engagement reinforces a public policy that results not from collective deliberation about the public interest but the success of campaign strategies. In a democracy, voters elect their representatives. However, members of Congress increasingly choose who can and who cannot vote for them by influencing gerrymandering in state legislatures. While many in the United States may declare sympathy for policies favoring equality, most would support inequality under certain conditions. 1. People would agree that inequality is justified if everyone has a fair (not necessarily equal) chance to get ahead.46 Not only would most people not object to inequality in the distribution of wealth or income if the race was run under fair conditions with no one handicapped at the start, but they would actively support it as well. However, the situation quickly becomes murky. Many people do try to compete for the scarce number of high-paying jobs by attending college so their future incomes will be higher. Some may choose not to attend college while others may have grown up in families who could not afford to send them to college

165

166

Public Policy

or provide a background conducive to preparation for it. For those people, the resulting lower income is not voluntary. What parameters make conditions fair? Of particular concern is the fairness of inheritances. What of the genetic inheritance of talent? Much of our most important human capital is carried in our genes, with the ownership of productive resources just an accident of birth. Is it fair that some individuals through their genetic endowment, a factor beyond the control of the person so equipped, have high innate intelligence, physical abilities that allow them to become professional athletes, or physical attributes that allow them to become highly paid models, while the genetic inheritance of others determines that they will be mentally or physically limited, or even both? We usually do not worry too much over this kind of inheritance, but its effects are very real. What about the inheritance of gender? Studies indicate that women born in the United States doing the same job as men receive approximately 79 percent of that received by a man.47 Is that fair? What about the inheritance of those who grow up as an ethnic minority in a culturally deprived family in a ghetto neighborhood, as opposed to a child born to a white privileged family who can afford the most stimulating environment and best schools available for their children? Then, there is the income differential resulting from inherited wealth. Many of the superrich in the United States got that way through merely inheriting large sums of money. That it should be possible to pass some wealth on from one generation to another is generally conceded, but the passing on of large fortunes virtually intact is frequently challenged. Classical conservatives tend to be most supportive of the theory of social Darwinism, which holds that society is a place of competition based on the principle of “survival of the fittest” in which those who are most fit win the competition for material goods. Social Darwinists are opposed to the passing on of large inheritances from one generation to the next because it nullifies the fairness of the competition. Someone who inherits a fortune may have mediocre talent but does not have to “compete” with others and prove his or her ability through competition. As Barry Switzer, onetime head coach of the Dallas Cowboys, famously said, “Some people are born on third base and go through life thinking they hit a triple.” Any discussion of inheritances suggests the role of chance in income distribution. Chance operates not only in inheritances but also in the wider region of income differentials. One individual hits a lottery jackpot, another finds a superhighway built adjacent to his farm that increases its value several times, and another unexpectedly finds oil on her land. On the other hand, workers may find themselves out of work for a prolonged period due to events beyond their control, such as a recession, expensive debilitating illnesses, or the disappearance of the highly paid positions they were trained for. 2. No one objects to inequality if it reflects individual choice. If an individual decides to turn his or her back on the secular world to become a Franciscan and

The Politics and Economics of Inequality

take a vow of poverty, no one would object. If someone decides to take a job that offers financial incentives because of unpleasant or inconvenient working conditions, or because it is more dangerous, no one will object to the higher wages. The problem is that frequently these decisions do not result from free choices but are brought about by circumstances. A person raised in a ghetto, with no opportunity to sacrifice current income to improve skills through education so that a future income will be higher, may not have the option of choosing to work in a highly paid profession. 3. People accept inequality when it reflects merit. Nearly everyone believes in the correctness of higher pay when it is demonstrably justified by a different contribution to output.48 Some people work longer hours than others, or work harder when on the job. This extra effort may result in income differences that are largely voluntary. Other workers acquire experience and technical skills over time that may result in their earning a higher wage. Extra effort by individuals on the job and in acquiring skills is part of the justification for a wage differential based on seniority. 4. People accept and even support inequality when they are persuaded that the inequality will benefit everyone. Often the common good is thought to include an increase in the gross domestic product since greater productivity typically means a brisk demand for labor, higher wages, and greater economic activity. Therefore, the argument is often made by some politicians and economists that policies encouraging inequalities that benefit those with higher incomes are justified because they will lead to higher savings for the wealthy, which in turn will ultimately be translated into investments that will create the jobs to enrich the prospects of everyone else. That argument really states that the economic problem with the country is that the rich do not have enough money. So to help the poor, the rich must have their taxes cut. The proposal for a lower capital gains tax is just such a suggestion in the trickle-down theory of economics, which suggests that if the wealthy only had more money, they would be more highly motivated to invest more of it in the hope of making a profit, and these investments would then create more jobs, thus helping society in general.49 These four general principles describe how the unequal distribution of income and wealth is defended, but just because a defense can be made, no reason exists why US citizens should excuse blatant and increasing inequality.

A Functional Theory of Inequality Those who defend growing inequality provide a counternarrative that claims inequality is the natural consequence of any incentive system because some will inevitably produce more than others. According to the functional theory of

167

168

Public Policy

inequality, society must first distribute its members into the various jobs or roles defined by the society and then motivate them to perform their tasks efficiently. Some jobs are more important than others in the sense that successful performance of them is crucial to the welfare of the whole society.50 Additionally, some tasks require skills that are either difficult or scarce because they require special training. To ensure that the most important jobs are performed competently, every society provides a system of unequal rewards to produce incentives to channel the most competent people into the most important and difficult jobs, thus ensuring the greatest efficiency in the performance of these jobs. We should also emphasize that according to this theory, “a position does not bring power and prestige because it draws a high income. Rather it draws a high income because it is functionally important and the available personnel is for one reason or another scarce.”51 Accordingly, the population should come to understand and accept that inequality is functional. The defenders of this theory also argue that any program that redistributes income from the more successful to the less successful will reduce incentives for the most productive to produce. They maintain that the beneficiaries of redistribution programs will suffer in a weaker economy, which would result in lower incomes for all and reduced tax revenues to help the poor. Milton Friedman believed that the market is the most efficient way of filling the most important positions with the most capable people. He said, “No society can be stable unless there is a basic core of value judgments that are unthinkingly accepted by the great bulk of its members. I believe that payment in accordance with product has been, and in large measure still is, one of these accepted value judgments or institutions.”52 The system of unequal rewards works to the advantage of the whole system by guaranteeing that jobs essential to society’s welfare are performed efficiently and competently. The functional theory of inequality is intuitively appealing, but it immediately faces several challenges. The main argument against a more equitable distribution of income is based on efficiency and the assumption that all have an equal opportunity. The functional theory of inequality is a variation on the marginal productivity theory of distribution, which assumes that the income of any factor will be determined by the contribution that each factor makes to the revenue of the endeavor. However, if a perfect market does not exist, then the earnings of each factor may not reflect their contribution to output. The marginal productivity theory cannot explain the variation of incomes due to nonmarket factors such as racial, ethnic, or gender discrimination, imperfect markets, or other factors. That functional theory might be correct in a perfectly competitive economy in which private returns of wages and profit were equal to social returns. But in fact, the economy is marked by other distortions such as rent seeking, a behavior so pervasive in the US economy that it actually impairs overall efficiency, according to Nobel Prize–winning economist, Joseph Stiglitz.53 He maintained that in instances

The Politics and Economics of Inequality

where private rewards of those at the top significantly exceed their marginal social contribution, redistribution could reduce inequality while it improves efficiency.54 If capital markets were perfect, he argued, then individuals could invest in themselves or their families to the point where additional returns would equal the cost of capital. Since capital markets are not perfect, the less well-off do not have easy access to capital, reducing their ability to invest in their own or their children’s education. As a result of these market imperfections, many families with little wealth, and only limited educational opportunity provided by the government, are forced to underinvest in human capital while the affluent have no such constraint. So the high national inequality in income and wealth also produces a society with a high lack of equality of education and upward mobility opportunity. The functional theory of inequality is also open to some criticisms that do not completely rebut it but significantly narrow the range of inequalities that can be justified as functionally imperative. 1. Determining which skills are in scarce supply is relatively easy, but telling which jobs are the most important to the welfare of a particular society is more difficult. Questions of comparable worth, for example, are notoriously complex problems. After agreement is reached regarding the extremes (e.g., the importance of the cardiovascular surgeon compared to the street sweeper), determining the relative importance of jobs more at the “center” becomes more difficult (e.g., managing a corporation versus teaching young children, or working as an accountant versus being a dentist). How does one decide? Those supporting the functionalist approach usually shift from an assessment of the relative importance of any particular position to assessing its relative skill level and the scarcity of that skill in the society. 2. Contrived scarcity can affect the supply of skilled personnel. Once attention is shifted from the importance of the job to the scarcity of talent, one must confront the reality that a critically located profession can control the supply of talent (through rent seeking). Any profession tries to promote the economic interest of its members by increasing their income. Competitive conditions would attract more members, potentially developing a surplus and driving incomes down. So the profession will typically try to limit its membership through occupational licensing, creating a contrived scarcity. Many occupations require a state license. Frequently, the licensing process is strongly influenced by the profession, whose members claim that they alone are competent to judge the criteria necessary for training and certification. Members justify their control by citing the need to exclude “quacks.” But the certification, whether for architects, accountants, lawyers, or physicians, has substantial economic value. Frequently, the license is fundamentally a way to raise wages in a particular profession by limiting competition. Typically, licenses are granted by a panel of practitioners in the field who determine how many are to be

169

170

Public Policy

granted and to whom. The potential for conflicts of interest is apparent. Restricting competition raises the income of the rent seekers. But if those who benefit can then buy more political influence, which further increases their share of income, such manipulation of the market undermines the democratic notion of equality of competition. The point is that once the first criterion of the functionalists (the importance of a particular kind of job) recedes into the background, the functionalist interpretation of the second criterion (the scarcity of needed skills) becomes doubtful. 3. Functionalists emphasize the positive side of their theory and ignore its negative aspects. The theory does identify the value of talent and shows how rewarding various talents motivates those who possess them to work efficiently. However, it ignores the demotivating effects for those with fewer talents. Those at the higher end of the income stream can be motivated with the aspiration to bonuses, higher wages, life and health insurance benefits, promotions, and pension programs. But workers at the lower end of the income stream will never be offered higher pay as a motivator, for at least two main reasons. First, low income at this end of the pay scale must provide the differential to fill the higher positions with competent and conscientious workers. Second, the money needed to pay some people more must be taken from those who will be paid less. Thus, in functionalist theory, the workers on garbage trucks who are quick and efficient cannot be rewarded by higher pay or bonuses, although they may be valued employees. As these individuals get older and slower, they must continue to work because of the need to provide for their families, even under the most adverse conditions. Consequently, the brutal motivators of low income, unemployment, and the threat of unemployment are concentrated among those jobs where the skill levels are the lowest and the supply of people having the skills is the greatest. In sum, the carrot motivating those at the upper-income levels requires the stick to motivate those at the lower levels of income. Functionalist theory rarely mentions this. 4. For the functionalist system of inequality to operate smoothly, the society as a whole must see it as working to benefit the entire population. Most of the population must also believe that their tasks and income levels reflect their skills and relative contributions to the society. The stratified system will then rest on a consensus in which even those at the lower end of the income stream understand that their low wages and the threat of unemployment are necessary motivators to keep them working. Not surprisingly, those who wholeheartedly believe in the system tend to be found at the upper end of the income stream. Those at the lower levels cannot both believe in the system and have a sense of self-esteem.

Why Growing Income Inequality Is a Public Policy Problem Income inequality threatens the political stability of many developing countries. Even in a wealthy country like the United States, great inequality in income and

The Politics and Economics of Inequality

wealth is a social problem and, therefore, an issue for the policy agenda. The data confirm our expectations. Nations with less progressive tax systems have more inequality than is found in countries with highly progressive tax systems. Countries with more economic inequality also tend to have more political inequality. In a country like the United States that allows the rich to exercise much more influence in providing campaign contributions through such decisions as Citizens United, that taxes on the rich are as low as they are should come as no surprise. Joseph Stiglitz stated that failures in the political system in the United States are as great as the market failures. He stated that the political system is closer to “‘one dollar, one vote’ than to ‘one person, one vote.’” He continued, Rather than correcting the market’s failures, the political system was reinforcing them. . . . The failures in politics and economics are related, and they reinforce each other. A political system that amplifies the voice of the wealthy provides ample opportunity for laws and regulations—and the administration of them—to be designed in ways that not only fail to protect the ordinary citizens against the wealthy but also further enrich the wealthy at the expense of the rest of society. . . .The economic elite have pushed for a [legal] framework that benefits them at the expense of the rest, but it is an economic system that is neither efficient nor fair.55

For years after the Great Depression, a tacit agreement developed between those at the top and the rest of society that implied that workers would be provided with jobs and sufficient income to enable them to take part in the nation’s growing prosperity, while those at the top would receive a larger share. But in the last several decades any implied agreement between the rich and the rest, which was always halfhearted, has collapsed. In the aftermath of the Great Recession, a hugely disproportionate share of income growth has gone to corporate profits, crowding out any increased return to labor in the form of wage increases. By 2012, productivity was almost 8 percent higher than it was at the beginning of the Great Recession. Those in the top 10 percent recovered from the recession by late 2012, while a majority of people in the United States were still worse off than they were before the onset of the recession. Social cohesion is a major casualty of extreme inequalities. Social divisions lead inexorably to political and social polarization. As income inequality has grown, the extremes in affluent and poor neighborhoods have become more common and provide a physical separation in which the rich and poor increasingly live in separate communities. According to Robert Reich, those who are better off increasingly withdraw their support for the most visible public institutions supported by all taxpayers that are available to everyone. 56 As wealth has become more concentrated and the tax system less progressive, the affluent have pushed for “privatization,” which means “pay for it yourself.” Increasingly, what is called “public” is becoming more “private” by increasing fees from higher tuition at pub-

171

172

Public Policy

lic universities, higher tolls on public highways and bridges, and higher admission fees at parks. As public schools deteriorate, middle- and upper-income families send their children to private ones. As public playgrounds decay, the affluent buy memberships in private golf, swimming, and tennis clubs. The consensus of the 1930s—that all citizens benefit from public goods—has been reversed. Excellent roads, parks, schools, and so forth, would knit the society together, promoting the public welfare and generating a shared prosperity. In the post–World War II period, strong public institutions were seen as a protection against mass poverty. The nation was bound together by mutual needs and a consensus regarding common threats. For this reason, the greatest expansion of higher education after World War II was the GI Bill and the National Defense Education Act, and the largest public works project in the nation’s history was titled the National Interstate and Defense Highways Act.57 But in the second decade of the twenty-first century, with politics distorted by highly concentrated wealth and income and unlimited campaign donations, the notion of the public good has faded. In the 2012 election, 28 percent of “disclosed” political contributions came from just 31,385 people. In a nation of 313 million people, these donors represent just 1 percent of the 1 percent, an elite group that the Sunlight Foundation reported “increasingly serves as the gatekeepers of public office in the United States.”58 The wealthy are inclined to contribute money to politicians and organizations that endorse reductions in government regulation of business, taxes, and many government programs, including social welfare programs. They are very aware of the benefits of economic inequality for themselves and focus clearly on the goal of protecting their economic status when they contribute to political candidates. Inequality undermines the value of equality of opportunity and upward social mobility. In a mobile society, an individual’s ultimate economic status should not be heavily based upon the economic standing of his or her family. Inequality in the United States was often defended as the price the citizens of the country paid for social mobility. Some even suggested that US residents were less concerned about the inequality in the distribution of income than were Europeans because those in the United States believed that they lived in a more mobile society and believed they had a greater opportunity to move up the income ladder than did Europeans.59 Recent research shows a clear negative relationship between inequality at a point in time and intergenerational social mobility.60 One study concluded that of the OECD nations, the United States was among the least mobile in that 47 percent of the advantage high-earning young men have over lower-earning peers may be due to their coming from more affluent families. In Canada, Finland, Norway, and Denmark, the effect of fathers’ earnings on adult sons’ relative earnings was found to be lower (about 20 percent or less) while intergenerational elasticity for Germany and Sweden was around 30 percent.61 The Pew Economic Mobility Project found

The Politics and Economics of Inequality

low mobility from the bottom fifth of the US income distribution. The study found that 43 percent of children whose parents were in the bottom quintile remained in the bottom as adults. Conversely, the same study estimated that children raised in the top quintile tended to be in the top quintile as adults (40 percent).62

Factors Driving the Increase in Income Inequality Changing family structures and household living arrangements (e.g., away from married-couple families and toward single-adult households) reduce economies of scale. Also tax policies in several countries, particularly in the United States, have become less redistributive than in the 1990s. The OECD found a major reason for the decline in the redistributive policies was on the benefit side: cuts to benefit levels and “tightening of eligibility rules to contain expenditures for social protection and the failure of transfers to lower income groups to keep pace with earnings growth.”63 In 1935 as part of the New Deal, Congress passed the National Labor Relations Act or Wagner Act, which placed the federal government squarely on the side of the right of workers to form unions and to bargain collectively. Over the next fifteen years, the percentage of US workers in unions rose from 11 percent to over 35 percent. During that time, unions played an active role in helping to create standards such as a minimum wage, pensions, wage and hour laws, and health and safety rules.64 By 2012 union membership in the private sector had fallen to 6.6 percent, while public sector workers had a union membership rate more than five times higher than the private sector at 35.9 percent.65 When public and private union membership is combined, a total of 11.3 percent of the labor force are members of a union. The dramatic decline in private sector unions has resulted from a more hostile political environment, unfavorable legislation and court decisions, and the changing character of the domestic economy. Critics have frequently blamed unions for driving up the cost of labor, making US companies unable to compete with foreign companies or companies with factories located overseas. Various studies challenge that notion and in fact conclude “unions have no net effect on a firm’s closure.”66 Josh Bivens of the Economic Policy Institute found that blue-collar workers in manufacturing provide a competitive edge over many trading partners since they typically earn lower wages than many US trading partners while posting higher productivity levels.67 Others see growing inequality as a serious threat to society’s political, social, and economic well-being. They argue that income inequality causes spillover effects into the quality of life, even for those not necessarily in poverty. Wide economic disparities result in frustration, stress, and family discord, rising crime rates, violence, and homicide. Robert Putnam has suggested that the breakdown of social

173

174

Public Policy

cohesion brought about by income inequality threatens the functioning of democracy. He found that low levels of civic trust spill over into a lack of confidence in government and low voter turnout at elections.68 Others for more income equality argue that a highly unequal distribution that provides a great deal for the few and little or nothing for the many creates political unrest and threatens the stability of the society. When 25 percent of the population lives at the subsistence level and the top 10 percent who receive most of the income also dominate the political and economic levers of power, the poor may not support a system that appears to provide few opportunities for them to take part in the American Dream. While the most affluent may complain about government in the United States, many find it the best alternative possible: too gridlocked to reduce inequalities and too divided to do anything but reduce taxes.

How Inequality Harms the Middle Class Robert Frank has written extensively on how inequality encourages the middle class to engage in excessive spending that ultimately becomes self-defeating.69 Frank focused on positional goods, or goods whose value to an individual is largely determined by how much of the good one has in comparison with others. These goods are typically those in which differences in quality and size are readily apparent. In modern cultures, people care about the relative consumption of some goods more than others. When asked whether they would rather own a 4,000square-foot home in a community where others lived in 6,000-square-foot homes, or a 3,000-square-foot home in a town where everyone else had 2,000 square feet, most people would choose the 3,000-square-foot home. Frank points out that the desire to avoid “relative deprivation” drives consumption of these goods. The purchase of goods like large homes, expensive cars, and the most up-to-date electronic gadgets are driven by a desire to keep up with the Joneses. The value of positional goods appears to be relative. Other goods are more absolute in their valuation. Vacation time is such a good. When asked whether they would rather have four weeks of vacation per year when other people have six weeks, or instead have two weeks when other people have only one, most people opt for four weeks.70 Vacation time seems to be absolute. Excessive concern over positional goods may in part reflect Adam Smith’s observation that greed and self-interest are the driving force of so many human activities, but Frank also pointed out that comparing the possession of certain positional goods may reflect a more “rational” judgment. For instance, when parents move to a new community, they are concerned about the quality of schools. Since better-funded schools are usually found in more affluent communities, and individual student achievement levels tend to be higher when other students come from a high socioeconomic level, many middle-income parents typically move to the

The Politics and Economics of Inequality

wealthiest community they can afford. Buying the most expensive house that one can afford is not irrational since the school district is part of the purchase. The problem with positional goods is that since others are making the same decision based on the same rationale, the decision is nullified. Others make the simultaneous effort to move to a more affluent community to enroll their children in the same superior school. The result is that the neighborhood is made up of families who have collectively bid up the price of housing, while those who move out vie to buy homes in an even more expensive neighborhood. The reverse is also true, in that if everyone is trying to move up the socioeconomic ladder, one may feel the need to strive to get ahead to avoid being left behind. Ironically, once everyone has tried to move up, striving to improve their circumstances, because the position is still relative to others, the person is no better off than before, and all these people are poorer since they are burdened with larger mortgages. Likewise, since the relative weight of cars is a significant factor in injuries and death, a buyer may be persuaded to buy a bigger and heavier family car. A small, otherwise practical and economical car in a ritzy neighborhood may be a visible sign of relative poverty. The buyer may now be saddled with a higher mortgage and car payment, like most neighbors in the community who are all trying to keep up with the Joneses. What is “smart for one” is “dumb for all.” Frank claimed that the value placed on positional goods is based on the contextual situation. Generally, the position of households just above or below one’s own economic level forms the basis for contextual comparisons. Those at lower socioeconomic levels may not be directly affected by the decisions of the superrich in their choices of houses or cars, though other rich people are influenced. However, their choices influence the merely wealthy, or those just one step down the ladder, and in this way, comparisons ripple down through the income distribution. Frank claimed that societal competition for the “best” positional goods has exacerbated the increasingly futile efforts to gain status by spending more. During the period of the Great Compression, the incomes of the bottom 80 percent grew faster than the incomes of the top 1 percent, and those in the bottom 20 percent grew the fastest. Since 1979, incomes of the top earners have grown most rapidly. In a society in which the wealthiest set the norms for consumption, people at every step on the income ladder strain to maintain the consumption level of those just above them. As the wealthy grow ever more affluent faster, those further down are pulled along, and the middle class is pressured to buy more expensive houses and other positional goods. Between 1980 and 2001, the median size of new homes in the United States increased from 1,600 to 2,100 square feet, even though the family’s median real income remained stagnant in the intervening years. According to the data, the end result is that the average worker in the United States now puts in more hours, saves less, and has shorter vacations, longer commutes, and greater debt. At the same time, beleaguered voters are more supportive of candidates proposing to cut taxes and

175

176

Public Policy

costly public services. Voters are less likely to support goods that are insensitive to context and position, such as more leisure, because they cannot afford them. Frank’s recommended policy solution is to institute a progressive consumption tax. The tax would encourage saving by taxing households at a higher rate as their consumption went up. He argued that a greater reliance on a consumption tax, as is generally applied in Europe, would ratchet down the consumption race by making it progressively more expensive to consume the higher one is on the income ladder, in turn reducing the pressure to compete by buying positional goods.

Conclusion The American Revolution ushered in a new age of democracy. The democratic ideal, based on the fundamental principle of equality, sweeps aside all claims of special power and privilege. Democracy as a form of government is an ideal to be pursued rather than a goal to be fully achieved merely through recognition of the rights to free speech or the right to vote. The framers of the Constitution dedicated themselves to the proposition that all men are created equal, even though some were slaves and others without property were denied the right to vote. The United States became more democratic when it abolished ownership of property as a requirement to be a voting member of society. Democracy, as the Constitution attests, is based on compromise between society’s elites and nonelites. The elites, not surprisingly, resist with every means at their disposal any movement toward greater equality that challenges their interests. Control over the political institutions is always central to the struggle, since the elites can use the political institutions to influence perceptions, values, and political preferences of the nonelites by their dominant position as opinion makers in mass communication. Through money and organization, the elites more than make up for their small numbers while the poor, lacking both resources and organization, are not as powerful a political group as their numbers might suggest. The Great Depression made the argument of the elites that the government should not intervene in the natural economic cycles of the market increasingly untenable. Keynesian theory showed that excessive economic inequality could not only hinder economic growth and stability but also threaten the very survival of democratic systems. The Great Depression and the election of Franklin D. Roosevelt resulted in the New Deal, in which great inequities were challenged by Roosevelt as being incompatible with the preamble to the Constitution. His presidency was nothing less than a revolution of the office and a recommitment to the idea of the interdependence of all living in the United States. Roosevelt, more than any other US president before him, established the concept that the government could be an instrument for good in extending freedom to those who were trapped in

The Politics and Economics of Inequality

poverty. This period after World War II until the end of the 1970s is known as the Great Compression, in which an effort was made to return to an equality of circumstance. The mobilization of the government under the New Deal to end the Great Depression and provide stability and security for citizens brought about the newly wide acceptance that a major function of government is to provide for a distribution of resources that comports with our ideas of justice and fairness. President John F. Kennedy lamented the practical problem for public policy when he said in his inaugural address in 1961, “If a free society cannot help the many who are poor, it cannot save the few who are rich.”71 By 1980, over forty years after the end of the Great Depression, the financial elites returned to power. Ronald Reagan campaigned on the theme that government is not the solution to our problems, but the problem. His probusiness, antiunion, supply-side economic views marked a return to the 1920s and the already discredited trickle-down economic approach. Since these views had been refuted by Keynesian economic views, they were supported mostly by ideological justifications rather than by academic debate, in accordance with the views of many wealthy individuals who preferred some tax and economic policies that personally benefited them even if such policies slowed economic growth. Redistribution may be concerned with relative inequality or absolute deprivation. Since about 1980, inequality in both income and wealth distribution has increased markedly. The increase, which has been greater in the United States than in other OECD countries, is due to a variety of factors, including globalization, oligopolistic power, and changes in tax and social welfare legislation designed to redistribute income toward those already at the top. The functional theory of inequality holds that economic inequality has a beneficial effect in a capitalist society. The theory has several drawbacks, however, that justify government involvement to redress the power imbalance of dominant economic groups. Economic theory makes no claim that capitalism distributes income and wealth in a just fashion. To the extent that the political apparatus becomes dependent on a financial elite, democracy is undermined. In the extreme case, the old hereditary aristocracy is merely traded for a financial aristocracy. An economic elite with inordinate political power moves the democratic ideal of meaningful political equality further from citizens’ grasp. Some inequality is not only inevitable but also necessary. However, many scholars think a healthier democracy would result from less inequality than now exists. Policies that would reduce inequality include raising the minimum wage, strengthening antipoverty programs such as the earned income tax credit, strengthening the social safety net to include health care, and increasing rather than decreasing progressiveness in the tax code.

177

178

Public Policy

Political contributions from elites give them far greater influence than less affluent voters. The process results in economic policies that add to elites’ share of total wealth and income, which is at variance with theories of democracy.

Notes 1. Considered an “unsourced quote” though widely attributed to Plutarch. 2. Cited in Irving Dilliard, Mr. Justice Brandeis, Great American (St. Louis: Modern View, 1941), p. 42. 3. Jim Kuhnhenn, “Obama: Income Inequality a Defining Challenge of Our Time,” Associated Press, December 5, 2013, http://www.nola.com/politics/index.ssf/2013/12/president _obama_income_inequal.html, accessed April 4, 2014. 4. See Page Smith, A New Age Now Begins (New York: McGraw-Hill, 1976), for a detailed discussion of the importance of this idea. 5. Federalist #10, p. 58, Dawson edition. 6. Garry Wills develops the thesis that the idea of all men being created equal was more than just rhetoric. See Garry Wills, Inventing America: Jefferson’s Declaration of Independence (New York: Doubleday, 1978). 7. Thomas Jefferson, The Papers of Thomas Jefferson, ed. Julian P. Boyd (Princeton, NJ: Princeton University Press, 1953), vol. 8, p. 682. 8. Ibid. 9. Peter H. Lindert and Jeffrey G. Williamson, “American Incomes Before and After the Revolution,” NBER Working Paper 17211, http://nber.org/papers/17211, National Bureau of Economic Research, Cambridge, MA, July 2011, p. 2. Lindert and Williamson base their conclusions on more archival data than were available to earlier researchers, using downloadable spreadsheet and text files at http://gpih.ucdavis.edu. Using exchange rates and purchasing power parities, they found that US households had more equal incomes than those in England and Wales. Colonists also had greater purchasing power than their English counterparts over all income ranks except the top few percent. 10. Ibid. 11. Ibid. Jefferson then noted the wrongs of slavery and his desire that it should be ended. Nevertheless, he pointed out that thousands of the poor in England were forced into the military until injury or age resulted in their being cast aside. By contrast, he wrote, the United States had no standing army because no man would hire himself out to be shot at for a shilling a day. He concluded by “computing by numbers the sum of happiness of the two countries. In England, happiness is the lot of the aristocracy only.” He estimated that there were four aristocrats for every hundred people in the population. “Then the happiness of the nation would be to its misery as one in twenty-five. In the United States it is as eight millions to zero, or as all to none.” 12. Alexis de Tocqueville, Democracy in America, cited in William Ebenstein and Alan Ebenstein, Great Political Thinkers (New York: Harcourt Brace, 1991), p. 641. 13. John Maynard Keynes, The General Theory of Employment, Interest, and Money (London: Macmillan, 1936), p. 372. 14. Thomas Frank, What’s the Matter with Kansas? How Conservatives Won the Heart of America (New York: Metropolitan, 2004). 15. Gary Burtless and Christopher Jencks, “American Inequality and Its Consequences,” in Henry J. Aaron, James Lindsay, and Pietro S. Nivola, ed., Agenda for the Nation (Washington, DC: Brookings Institution, 2003), p. 62.

The Politics and Economics of Inequality 16. Robert Putnam, “The Strange Disappearance of Civic America,” American Prospect (Winter 1966): 34–36. 17. Martin Dooley and Peter Gottschalk, “Earnings Inequality Among Males in the United States: Trends and the Effects of Labor Force Growth,” Journal of Political Economy 92, no. 1 (1984): 59–89. The gap between high- and low-wage women began increasing as well, just not as rapidly as for men. 18. Linda Levine, The Distribution of Household Income and the Middle Class, Congressional Research Service Report RS20811 (Washington, DC: Congressional Research Service, 2012), p. 3. 19. Joseph E. Stiglitz, “The Price of Inequality,” Project Syndicate, June 5, 2012, http:// www.project-syndicate.org/commentary/the-price-of-inequality, accessed April 4, 2014. 20. G. Ross Stephens, “Public Policy, Income Distribution, and Class Warfare,” Poverty and Public Policy 1, no. 1 (March 2009): 1–23. 21. Ibid. 22. “Question of the Day: Modified Adjusted Gross Income (MAGI),” Health Reform: Beyond The Basics, December 2013, http://www.healthreformbeyondthebasics.org/wp -content/uploads/2013/12/Modified-Adjusted-Gross-Income-FAQ.pdf, accessed April 4, 2014. 23. US Department of Health and Human Services, “The 2014 HHS Poverty Guidelines,” http://aspe.hhs.gov/poverty/14poverty.cfm, accessed April 4, 2014. 24. Organisation of Economic Co-operation and Development, “Crisis Squeezes Income and Puts Pressure on Inequality and Poverty,” www.oecd.org/social/inequality.htm, accessed April 4, 2014. 25. Ibid., p. 2 (emphasis added). 26. Robert H. Frank and Philip J. Cook, The Winner-Take-All Society: Why the Few at the Top Get So Much More Than the Rest of Us (New York: Penguin, 1996). 27. See Gary Burtless, “International Trade and the Rise in Earnings Inequality,” Journal of Economic Literature 33 (June 1955): 800–816. 28. Paul Krugman, The Conscience of a Liberal (New York: W. W. Norton, 2007), p. 140. 29. Ibid., p. 141. 30. Edward N. Wolff, Top Heavy: A Study of the Increasing Inequality of Wealth in America (New York: Twentieth Century Fund, 1995), p. 6. 31. Edward N. Wolff, The Asset Price Meltdown and the Wealth of the Middle Class (New York: New York University, 2012), p. 58. 32. Ibid. 33. Michael Norton and Dan Ariely, “Building a Better America—One Wealth Quintile at a Time,” Perspectives on Psychological Science 6, no. 1 (2011): 9–12. 34. Chuck Collins, 99 to 1: How Wealth Inequality Is Wrecking the World and What We Can Do About It (San Francisco: Berrett-Koehler, 2012), p. 66. 35. See Andrew Fieldhouse, “How Much Can Tax Policy Curb Income Inequality Growth? Maybe a Lot,” Economic Policy Institute, June 14, 2013, http://www.epi.org/blog /tax-policy-curb-income-inequality-growth/. 36. John Schmitt, Why Does the Minimum Wage Have No Discernible Effect on Employment? (Washington, DC: Center for Economic and Policy Research, 2013), p. 22. 37. Krugman, The Conscience of a Liberal, p. 140. 38. Dooley and Gottschalk, “Earnings Inequality Among Males,” pp. 59–89. 39. Joseph A. McCartin, “The Strike That Busted Unions,” New York Times, August 2, 2011, http://www.nytimes.com/2011/08/03/opinion/reagan-vs-patco-the-strike-that-busted -unions.html?_r=0&pagewanted=print.

179

180

Public Policy 40. Jared Bernstein, “The Economics of a Higher Wage Floor,” Economix, New York Times, August 9, 2013, http://economix.blogs.nytimes.com/2013/08/09/the-economics-of-a -higher-wage-floor/?src=recg&pagewanted=print. 41. Pope Leo XIII, Rerum Novarum, May 15, 1891, http://www.vatican.va/holy_father /leo_xiii/encyclicals/documents/hf_l-xiii_enc_15051891_rerum-novarum_en.html, accessed April 4, 2014. 42. Theresa Riley, “What Is a Living Wage?” Bill Moyers.com, August 24, 2012, http://billmoyers.com/2012/08/24/what-is-a-living-wage/. 43. Vanessa Cardenas and Sophia Kerby, “The State of Latinos in the United States,” Center for American Progress, August 8, 2012, from http://www.americanprogress.org /issues/race/report/2012/08/08/11984/the-state-of-latinos-in-the-united-states, accessed March 25, 2014. 44. Krugman, The Conscience of a Liberal, pp. 207–298. 45. Robert Putnam, “Bowling Alone: America’s Declining Social Capital,” Journal of Democracy (January 1955): 65–78. 46. See especially Robert Heilbroner and Lester Thurow, Economics Explained, rev. ed. (Englewood Cliffs, NJ: Prentice Hall, 1994), pp. 216–218. This discussion on the bias in favor of equality relies heavily on this source. 47. Susan Adams, “You’re Under Too Much Job Stress, Especially If You Are a Woman,” Forbes, April 9, 2013, http://www.forbes.com/sites/susanadams/2013/03/06/youre -under-too-much-job-stress-especially-if-youre-a-woman, accessed April 4, 2014. In 1963 President Kennedy signed a law called the Equal Pay Act. At that time women received 59 cents on the dollar compared to men. In 2013, the government indicated that women receive nationally about 79 cents compared to men. But in forty-seven of the fifty largest metropolitan areas, women now receive 8 percent more pay than men in their peer group. 48. Economic discrimination occurs when duplicate factors of production receive different payments for equivalent contributions to output. This definition is hard to test because of the difficulty of measuring all the relevant market characteristics. For example, no discrimination may be involved if a woman with a high school diploma receives a lower salary than a man with a college degree (although discrimination might help in explaining their educational achievements). The question is not, do women earn less than men? Rather it is, do women earn less than men with like market characteristics (work experience, age, education, and so forth)? 49. Of course, the same goal could be achieved without yielding to inequality by financing investment through taxation and government purchases (public investment) rather than through private investment through savings. 50. See Kingsley Davis and Wilbert Moore, Some Principles of Stratification, Reprint Series in Social Science (New York: Columbia University Press, 1993). 51. Ibid., p. 37. 52. Milton Friedman, Capitalism and Freedom (Chicago: University of Chicago Press, 1962), p. 167. 53. Joseph E. Stiglitz, The Price of Inequality: How Today’s Divided Society Endangers Our Future (New York: W. W. Norton, 2013), pp. 133–134. 54. Ibid. 55. Ibid., pp. xlix–l. 56. Robert Reich, “Private Gain to a Few Trumps Public Good for the Many,” Robert Reich’s Blog, Truthout, August 24, 2013, http://truth-out.org/opinion/item/18382-private -gain-to-a-few-trumps-public-good-for-the-many.

The Politics and Economics of Inequality 57. Ibid. 58. Lee Drutman, “The Political 1% of the 1% in 2012,” Sunlight Foundation Blog, June 24, 2013, http://sunlightfoundation.com/blog/2013/06/24/1pct_of_the_1pct/. 59. See Alberto Alesina, Rafael DiTella, and Robert MacCuloch, “Inequality and Happiness: Are Europeans and Americans Different?” Journal of Public Economics 88 (2004): 2009–2042. 60. Paul Krugman, “The Great Gatsby Curve,” Krugman Blog, New York Times, January 15, 2012, http://Krugman.blogs.nytimes.com/2012/01/15/the-great-gatsby-curve/. 61. Miles Corak, “Do Poor Children Become Poor Adults? Lessons from a Cross Country Comparison of Generational Earnings Mobility,” IZA Discussion Paper 1993, Institute for the Study of Labor (IZA), Bonn, Germany, March 2006. 62. Economic Mobility Project, Pursuing the American Dream: Economic Mobility Across Generations, Pew Charitable Trusts, Washington, DC, July 2012. 63. Ibid. 64. Thomas Kochan and Beth Shulman, A New Social Contract: Restoring Dignity and Balance to the Economy (Washington, DC: Economic Policy Institute, February 2007), p. 2. 65. “Union Members Summary,” Economic News Release, Bureau of Labor Statistics, January 24, 2014, http://www.bls.gov/news.release/union2.nr0.htm. 66. John Dinardo, “Still Open for Business: Unionization Has No Causal Effect on Firm Closures,” EPI Briefing Paper, Economic Policy Institute, Washington, DC, March 20, 2009, pp. 2–3. 67. Josh Bivens, Squandering the Blue-Collar Advantage: Why Almost Everything Except Unions and the Blue-Collar Workforce Are Hurting US Manufacturing (Washington, DC: Economic Policy Institute, 2009), pp. 1–2. 68. Putnam, “Bowling Alone,” pp. 65–78. 69. Robert H. Frank, Falling Behind: How Rising Inequality Harms the Middle Class (Berkeley: University of California Press, 2007). 70. Ibid., p. 2. 71. John F. Kennedy, Inaugural Address, January 21, 1961, http://www.bartleby.com/124 /pres56.html, accessed April 4, 2014.

181

7 Education: A Troubled Federal-State Relationship Every year as millions of US youth and adults head back to school, state and national policymakers in education restate the need for major changes in the way the educational system works. From the beginning of public education in the early nineteenth century, schools have played a central role in the US experience. Almost 90 percent of young people in the United States attend public schools from kindergarten through high school. The schools’ doors are open to all students without regard to race, religion, gender, ethnic background, national origin, disabilities, or economic status. The goal of the public educational system, unlike private schools, is to level the playing field and provide equal educational opportunity for all. With the advent of compulsory education laws, school attendance became a universal part of our common educational experience. US youth learned about civic duty and various social norms in addition to academic instruction in science and the liberal arts. Schools are perhaps the most important contributor to the socialization of citizens and their identity in an educated, democratic society. Access to educational opportunities and educational attainment is a major component of the economic success of individuals and groups. In the United States, state and local governments are primarily responsible for providing education for their residents. In fact, education is the single largest expenditure item for most state and local governments, averaging just over one-third of their budgets. The structure of education funding reflects the predominant role of state and local communities at the elementary and secondary level where just 12.3 percent of the funds comes from federal sources.1 In fact, the US Department of Education as a cabinet-level department was not even established until 1979, during 183

184

Public Policy

the presidency of Jimmy Carter. Opponents of the new department warned that its creation would result in federal expansion into an area of traditional state and local government control. In 2001, the federal government’s role was expanded with the passage of the No Child Left Behind (NCLB) Act to an extent that would have been unimaginable in 1979. Now the Department of Education regularly wins state support for its preferred educational reforms by exploiting its ability to provide billions of dollars to states that agree to implement its policies. However, corporations and foundations also compete with states for access to Department of Education funds, and education in the United States has become inherently political. In this chapter we focus on the widespread societal concern referred to as the “crisis” in education. Perceived need to improve education, particularly at the primary and secondary levels, is a major public agenda issue. In the area of public policy toward schools, almost everyone has ideas about how to improve them. Everyone can claim a certain amount of expertise regarding school because everyone has attended school. Apathy and complacency has been replaced with increasing public interest as education has become an issue of national importance. Concern over the perceived problems in education has many different, and sometimes contradictory, sides. Many professional educators feel victimized by mostly outside critics who make the public schools the scapegoat for many ills in the wider society, and one has to wonder, how has the image been created of the public education system as the cause of society’s problems, rather than merely a reflection of them? The US public has long expressed a desire for improvement in the nation’s educational system. The Pew Research Center found that over 60 percent have said that education policy needed an overhaul when the question was asked in 2005, 2006, and 2011. A survey in the summer of 2013 by the center found that 66 percent expressed the view that the education system in the United States needs major changes.2 In a rare turn of events, consensus even exists across party lines on the need for major changes, with two-thirds of Democrats (67 percent), independents (67 percent), and Republicans (65 percent) in agreement.3 People of all stripes even have reached a general consensus on the major issues in education that should be addressed. More significant topics in education exist than can be adequately explored in a single chapter in this public policy text, but a brief listing of even some of the major problems that public schools and their communities must address suggests that many are related to issues examined in other chapters in this text. A partial rundown of concerns in education frequently raised in articles and opinion polls would include at least the following: privatization of public schools, lack of funding, poverty and inequality of education, income achievement gap, overcrowded schools, dropout rates, ethnic and racial achievement gaps, violence including bullying and use of drugs, student assessment, the Common Core, teacher performance, incentives to improve student achievement, technology and education, college and career readiness, and student debt. Interest-

Education

ingly, several issues listed are not directly related to academics. The classroom from K–12 and beyond to the college and graduate school level may not be an insulated oasis for learning, but instead a place that suffers from many of the same challenges that confront the nation at large. Fortunately, now more well-designed social science research studies produce results regarding what works in education and what appears to be merely the latest “fad.” In this chapter, we will try to sort out the best approaches to certain education issues that have been replicated and verified to propose public policy choices in education.

The “Crisis” in Education and the Fear of Failure Probably no other aspect of US public policy is framed as a national crisis as much as the state of the public education system. The persistent narrative that US schools are in crisis goes back at least a century, when alarms were sounded that urban schools were overcrowded and overburdened with children from southern and eastern Europe who could not speak English. But everything changed on October 4, 1957, when the Soviet Union launched Sputnik, an artificial satellite weighing just 184 pounds, into an earth orbit. How could such a backward nation, at least in the perception of most in the United States, have accomplished such a technical feat? Several explanations were put forward ranging from Soviet spies penetrating Western scientific research to selfindulgent, lackadaisical US materialism and inattention to national security needs. Very soon, however, a dominant theory emerged that US schools were to blame for letting the Soviets get into space first.4 Within a matter of months scores of books critical of the US educational system were published, though most criticisms were complete nonsense. What the writers did not know was that the United States could have beaten the Soviets into space by more than a year, but President Dwight D. Eisenhower chose not to.5 On September 20, 1956, the Army Ballistic Missile Agency, under Werner von Braun, launched a four-stage Jupiter C rocket from Cape Canaveral. The first three stages put the rocket 862 miles into the atmosphere traveling at 13,000 miles per hour, 3,355 miles downrange. The fourth stage, which could have easily boosted a payload into orbit, was filled with sand rather than rocket fuel. Eisenhower was worried that the USSR might view any orbiting satellite that was designed as a weapon as a threat and react by threatening US allies in Europe. However, the navy’s Vanguard program was based upon smaller rockets and lighter payloads that were for research. Vanguard was publicly scheduled for a November 1957 launch, which might have prompted the Soviets to move up their timetable. Vanguard was behind schedule and finally launched a thirty-one-pound satellite, a payload too small to pose a military threat, into orbit in March 1958. Eisenhower reacted

185

186

Public Policy

calmly to the Soviets’ successful orbiting of Sputnik. His deputy secretary of defense, Donald Quarles, said, “The Russians have done us a ‘good turn’ unintentionally” in establishing the doctrine of freedom of space.6 More to the point, almost all the US engineers in the space program in 1957 would have graduated from high school in the 1930s, but in the media, and public perception, the schools of the 1950s were the target of criticism. Gerald Bracey reported that “for his part, Ike [President Eisenhower] was utterly perplexed that the success of Sputnik was seen to reflect a failed public school system.”7 Bracey, a critic of the current education system, coined the term Sputnik Effect to describe the perpetual state of crisis that has characterized the general narrative about the nation’s public school system ever since. In September 1958, Congress passed and the president signed into law the National Defense Education Act, introducing federal funding at all levels of public education, but especially in areas of science, technology, engineering, and mathematics (STEM). The loan program established under this legislation also provided millions of students with a way to finance their higher education, and the law itself became a precedent for all subsequent increased federal involvement in the development, implementation, and evaluation of education policy in the states. The federal response was an effort to appease public demand to remedy the perceived mediocrity of state public educational systems, resulting from apathy, lack of accountability, and state government shortsightedness. In the 1960s secondary schools and colleges were blamed for urban riots (the education system received no credit in the race to put a man on the moon before the Soviets). In 1983, twenty-six years after Sputnik, President Ronald Reagan’s secretary of education, Terrel Bell, appointed a National Commission on Excellence in Education to respond to his observation of the “decline in the quality of education in the American work force.” The report, A Nation at Risk, stated: Our once unchallenged preeminence in commerce, industry, science, and technological innovation is being overtaken by competitors throughout the world. . . . [T]he educational foundations of our society are presently being eroded by a rising tide of mediocrity that threatens our very future as a Nation and a people. What was unimaginable a generation ago has begun to occur—others are matching and surpassing our educational attainments. If an unfriendly foreign power had attempted to impose on America the mediocre educational performance that exists today, we might well have viewed it as an act of war.8

The apocalyptic tone of the report was widely quoted in the media, while educators who challenged the conclusions were dismissed as expected vested-interest defensiveness. Much of the data on either side of the argument at the time was based on statistical comparisons of domestic and international information that was general in nature. US successes during the 1980s and 1990s were often suggested as being

Education

in spite of the educational system, not because of it. In 2001, NCLB9 was enacted as a response to an ongoing educational crisis and is couched in the similar urgent language of A Nation at Risk, stressing the importance of rigid timetables, penalties, and testing, with rigidly prescribed outcome goals. The legislation reflected a growing concern that the US standing in the world was vulnerable. The result was that the urgency of educational success became interconnected with international competition and national security. While the public school system must confront many negative forces, in this chapter we will show that the educational system is dealing with many problems more effectively than the public has been led to believe. In fact, a major obstacle to improving the educational system comes from outside the educational system in the form of major foundations, education and technology corporations, government bureaucrats, hedge fund managers, and commercial hustlers posing as “reformers” who are intent on privatizing education. The reformers claim that the US public should expect schools to produce world-leading academic achievement with reduced funding. They blame a lack of teacher accountability for the failure to meet parental expectations and ignore family economic disparities. They then argue that most educational problems would be solved by diverting taxpayer money away from public school system priorities of training and hiring qualified teachers and reducing class sizes and putting that funding toward standardized testing and, if that is not effective, replacing public schools with privately run charter schools. We will focus on these issues later in this chapter, but first we will look at the policy justification for a public education system in the United States.

Investment in Human Capital Is Essential in a Democracy To most people, the notion of capital means a factory, shares of stock, or a bank account. They are forms of capital in that they are assets that provide income in the future, as opposed to consumption, which provides immediate benefits but does not increase one’s ability to earn future income. Human capital theory holds that expenditures on education, medical care, and training make individuals inherently more productive and, therefore, more highly valued workers. Adam Smith was the first to point out that education is an investment that will improve the future productive capacity of workers and their future earnings, just as an investment in machinery or a factory will generate future income. He said that the capital stock of a nation includes the useful abilities of all the inhabitants or members of the society. The acquisition of such talents, by the maintenance of the acquirer during his education, study, or apprentice-ship, always costing a real expense, which is a capital fixed and realized, as it were, in his person. Those talents, as they make a part of his fortune, so do they

187

188

Public Policy likewise of that of the society to which he belongs. The improved dexterity of a workman may be considered in the same light as a machine or instrument of trade which facilitates and abridges labour, and which, though it costs a certain expense, repays that expense with a profit.10

During preindustrial periods, the value of an individual to society was measured primarily in physical productivity rather than mental ability. The size of a nation’s population was a strong indicator of its power. With the advent of the industrial and commercial revolutions, that a nation’s power was less dependent on physical labor and more dependent on skills became apparent. A country with the largest population was not necessarily the most productive or powerful. The ability of colonial England and France to control far more populous territories illustrated this conclusion.11 Education can be thought of as human capital because individuals cannot be separated from their knowledge or skills in the same way as they can be separated from material assets. Just as a corporation commits some of its profits to buying new equipment to generate more profits at a later date, the individual may reduce current income (and consumption) by investing in education in the hope of increasing future income. By obtaining a college degree, individuals anticipate that they will acquire useful knowledge and skills that will improve their employment opportunities and lifetime earnings, resulting in a more pleasant job than a high school friend who did not continue his or her education would have. Since human capital is an absolute prerequisite for success in the global economy, the United States must seek to maintain economic competitiveness by constantly striving to improve the quality of the education of its graduates joining the workforce. President Barack Obama has proposed a sweeping policy change in the US education system. To accomplish this change, despite the budgetary issues the nation faces, he first aims to significantly increase the role of the federal government in the educational system. As he stated in 2011, A world-class education is the single most important factor in determining not just whether our kids can compete for the best jobs but whether America can out-compete countries around the world. America’s business leaders understand that when it comes to education, we need to up our game. That’s why we’re working together to put an outstanding education within reach for every child.12

Education is a distinct departure from other services provided by the government. Unlike social welfare or health care, which are concerned with the maintenance of human capital, education seeks to develop it. Yet widespread dissatisfaction with the US educational system makes clear that education is one area of public policy where many feel the current system deserves a low grade. Unfortunately, little consensus exists about what should be done to resolve the problems or who has the primary responsibility for taking corrective action. Policies that remove obstacles to achieving a quality education, such as reducing school violence or discouraging

Education

disruptive behavior, receive widespread support. Beyond these areas of obvious agreement, the unity quickly dissolves when more fundamental questions are raised. For example, what should be the purpose of the educational endeavor? Is it primarily to help individuals succeed to their full potential? Or is its main ideal to contribute to the public good by creating a more skilled labor force? Perhaps it is some combination of both propositions. These two separate ideas are the basis for conflicting educational goals and policies. The first view suggests that parents have a right to give their children the best education possible, one that will give them access to the most important jobs available (or allow them to pass on their privileged position in society to their children by giving them educational advantages). The second proposition leads to the view that education should promote the public good, which is best achieved by a dedication to educational equality. Many hold both views simultaneously. The result is widespread dissatisfaction with the US educational system. Education is a quasi-public good in that important positive externalities result from an educated society. A more highly educated and skilled workforce is more productive and produces more wealth than a poorly educated one. But education is not a pure public good since it does not meet the conditions of nonrivalry or nonexcludability. That is, the consumption of education by one individual (one person’s education) does not reduce the availability of education for others or prevent another from using educational skills. In the real world, no such thing may be found as an absolutely nonrivaled and nonexcludable good. For example, an overcrowded classroom may reduce the efficiency and quality of the educational process. But some goods approximate the concept closely enough for useful analysis. Education and Productivity

Education provides a potential positive externality of productivity. The person who most benefits from an education is the person who is educated. After all, education has some elements of a private market: for example, education raises a worker’s productivity and brings private rewards to individuals through higher income, more satisfying work, and more pleasant working conditions. The positive externality comes in the form of “spillover effects” to other workers. The educated worker’s productivity may also result in more workers being hired in the company. The society will also receive a benefit reflected through higher pay for the educated worker as well as added income for additional workers that will result in the government collecting more revenue through tax receipts that can be used to improve the “general welfare.” However, individuals demand education based on their expectations of personal benefit without regard to the larger benefits to society. Since individuals are not compensated for all the positive spillover effects from their education, they may decide to consume less education than is optimal for society. The external benefits justify that government provide education for everyone through subsidies.

189

190

Public Policy

Education and Citizenship

Public support of education has long been touted because of its positive impact on society. Thomas Jefferson, in a letter to acquaintance Joseph C. Cabell, wrote that “a system of general instruction, which shall reach every description of our citizens from the richest to the poorest, as it was the earliest, so will it be the latest of all the public concerns in which I shall permit myself to take an interest.”13 He was expressing his profound belief that the problems confronting government in a more advanced free society would require an educated citizenry knowledgeable of the issues and decisions to be made. Otherwise, decisions would be made either by the ignorant, or decisionmaking would have to be returned to the state and its bureaucracy, as was the case under colonial rule. Jefferson expressed his concern best in a letter to Charles Yancey when he famously wrote, “If a nation expects to be ignorant and free, in a state of civilization, it expects what never was and never will be.”14 He suggested that democracy is possible only in an educated society. An educated populous, conversely, may make democracy necessary because an informed public with an understanding of policy issues will demand to be heard. Functionalism holds the view that society can exist in harmony because its institutions spring from a shared culture. The function of education is to (1) transfer societal values, (2) produce a more informed citizenry, (3) produce workers with more productive skills, and (4) provide for “equal opportunity” by providing everyone, regardless of circumstance, with basic skills. School serves as a halfway house to assist a child’s passage between the familiar world of the family and the impersonal world of adult careers and community life.15 Belief that formal education correlates with good citizenship has become part of US culture. Education to Level the Playing Field: Redistribution

Functionalism also supports the concept that all members of society should have an equal chance for educational and economic success. This meritocratic ideal strongly supports equality of opportunity. Education is a normal good, a good for which demand increases when income rises and demand falls as income declines, while the price of the good (education) remains constant. If education were delivered only through a privately financed model, affluent families would always provide more education for their children than would lower-income families. More education should result in greater productivity and higher income for children of high-income families, especially later in life. Education and the Rate of Return on Human Capital

The theory holds that those with more human capital should be more productive than those with less. The productivity and quality of labor will be largely determined by the education and skill of the workforce. The educational process repli-

Education

191

cates many of the skills the job market rewards generously in the form of wages. Most efforts to measure the rate of return on investment in education concentrate on direct monetary benefits and ignore the spillover benefits that accrue to society because of the difficulty in measuring them. The fact that private rates of return on educational investment are higher and more easily measured than the social rates of return, especially for higher education, has been used to justify adding tuition fees and student loans at the university level. A positive relationship has been established between education and lifetime earnings. High school graduates ordinarily have higher lifetime earnings than those without a high school degree, and college graduates earn more during their lifetimes than high school graduates (see Table 7.1). This trend leads to the conclusion that one is better off with more rather than less education. That more education correlates with higher lifetime earnings does not prove that higher education causes the higher earnings.

Costs and Benefits of Human Capital Investment Further, estimates of educational benefits may be too low because of the difficulty of distinguishing between consumption and investment benefits. Education is not only an investment but also a consumption good in that many enjoy learning during the process. The financial benefit of the investment is plainly evident as Table 7.1 illustrates. Who pays for the costs of education? In regard to the public school system, government at the federal, state, and local levels underwrites the costs of education

Table 7.1 Average Annual Income by Highest Degree Earned, 2009 (in dollars) No High High School School Diploma Diploma All ages 25–34 35–44 45–54 55–64 65 and older

Associate’s Bachelor’s Master’s Professional Doctorate Degree Degree Degree Degree Degree

20,241 19,415 24,728 23,725 24,537

30,627 27,511 33,614 36,090 34,583

39,711 35,544 42,353 46,413 42,192

56,665 46,692 65,346 69,548 59,670

73,738 58,997 80,593 86,532 76,372

127,803 86,440 136,366 148,805 149,184

103,054 74,626 108,147 112,134 110,895

19,395

28,469

33,541

44,147

45,138

95,440

95,585

Source: US Census Bureau, Statistical Abstract 2009 (Washington, DC: US Government Printing Office, 2009), p. 152.

192

Public Policy

through tax subsidies, especially at the elementary and high school levels where compulsory attendance is required at least through age sixteen. Individuals during the years of their elementary and high school education forgo minimal income since the law precludes significant employment below the age of sixteen. All taxpayers, including those without children, absorb the cost of the educational subsidy. Human capital theory maintains that education provides skills and technologies, such as reading, writing, mathematical calculation, and problem solving, directly related to the production process. Education therefore raises productivity and the earning capacity of the individual worker, as predicted by the marginal productivity theory, which states that an employer will be willing to pay a worker only for what he or she adds to the firm’s utility. Higher educational attainment provides the individual not only with higher income but also with greater job security. One way to measure job security is to compare unemployment rates and educational attainment, as shown in Table 7.2. As less developed countries have dramatically increased their own supply of college graduates, businesses have found that even many highly skilled jobs can be sent overseas. For example, India is now producing over four times as many engineers annually as is the United States. Many jobs that used to employ only highly skilled and educated US workers can now be contracted out at far lower costs. The result is that higher education is less able to provide the safeguard against economic shocks that it once did. As pressure to cut costs rises, US businesses are replacing high-quality, high-wage workers in the United States with high-quality, low-wage workers abroad.

Table 7.2 Unemployment Rates by Educational Attainment, 1995–2010 (in percent) No High School Diploma 1995 2000 2003 2007 2010

4.3 3.0 4.8 3.6 8.2

High School Diploma Only 9.0 6.3 8.8 7.1 14.9

Some College or Associate’s Degree

Bachelor’s Degree or Higher

Total

4.8 3.4 5.5 4.4 10.3

4.0 2.7 4.8 3.6 8.4

2.4 1.7 3.1 2.0 4.7

Sources: US Census Bureau, Statistical Abstract 2007 (Washington, DC: US Government Printing Office, 2007), p. 376. US Census Bureau, Statistical Abstract 2009 (Washington, DC: US Government Printing Office, 2009). US Census Bureau, Statistical Abstract 2011 (Washington, DC: US Government Printing Office, 2011), p. 404.

Education

Many hoped that, as education became more available and equally distributed, children from disadvantaged families would get as much education as those from advantaged families. That has not happened. As we showed in the previous chapter on economic inequality, the United States has less opportunity for economic and social mobility than most European countries, and the educational system tends to “transmit inequality from one generation to another.”16 One study showed that high school graduates who are in the top quarter in socioeconomic status are almost twice as likely to go on to college as those in the bottom quarter.17 The gaps in educational achievement are a major factor in the transmission of inequality. Another study, by Christopher Jencks and his colleagues, found that about 40 percent of the association between male childhood family background and adult occupational status was due to students’ educational attainments, after controlling for the effects of IQ test scores. In other words, upper-class graduates receive higherstatus jobs than do working-class graduates because the former receive more education and not because of greater innate ability.18 Pierre Bourdieu, a French sociologist and leading critic of higher education, has focused on the glaring inequalities in the distribution of wealth and status that persist despite the expansion of educational opportunities for everyone. Bourdieu argued that individuals use education to maintain their positions of privilege. The educational system has displaced the family, church, and workplace as determinant variables for the transmission of social stratification. Since democratic societies originated in a rebellion against privilege and therefore affirm a belief in the essential equality of individuals, privileged groups cannot openly claim a right to dominating positions. Modern democracies rely on indirect and symbolic forms of power rather than physical coercion to maintain authority. Dominant groups have found that higher education can transmit social inequalities by converting them into academic hierarchies.19 The findings, that academic performance of students is highly correlated with parents’ economic and cultural background, have been verified by more recent studies in many societies, including the United States. In 2011 Sean Reardon released a major study documenting the new “income achievement gap.”20

Five Myths About Public School Education We have noted that education, as a public policy issue, is inherently political. Education is a major employer in the national economy, and public schools receive a sizable share of state and local budgets as well as a growing portion of the federal budget. Unsurprisingly, the education sector has attracted the interest of a variety of companies who see potential value and profits in imposing competitive business models on education and even privatizing some aspects of the public educational system. In some instances partisan political ideological battles spill over into edu-

193

194

Public Policy

cation. All these factors have made education debates increasingly contentious. Frequently, the debate is based upon confusion and phony issues. Here we intend to debunk several of these issues, by clarifying the actual state of affairs. The Myth of a Shortage of STEM Workers

The conventional wisdom echoed in countless media articles and by business leaders and politicians of both political parties is that our high schools and colleges are failing to provide an adequate supply of scientists and engineers, requiring the nation to import large numbers of foreign STEM workers to remain innovative and competitive. That piece of conventional wisdom happens not to be true. Several authoritative studies of the technical labor market, guest worker flows, and the STEM education pipeline find consistent evidence that “the United States has more than a sufficient supply of workers available to work in STEM occupations.”21 Another study by the National Research Council in 2013 addressed the question of whether the US Department of Defense faced a STEM worker shortage. It reported, “DOD [Department of Defense] representatives state virtually unanimously that they foresee no shortage of STEM workers in the years ahead except in a few specialty fields such as cyber-security and intelligence.”22 Notably, Robert Charette, writing for the Institute for Electrical and Electronic Engineers, noted that wages for US workers in computer and math fields have largely stagnated since 2000. “Even as the Great Recession slowly recedes, STEM workers at every stage of the career pipeline, from freshly minted grads to mid- and latecareer Ph.D.s, still struggle to find employment as many companies, including Boeing, IBM, and Symantec, continue to lay off thousands of STEM workers.”23 The Economic Policy Institute found that the flow of US students into STEM fields has been strong and responsive to changes in demand for workers and wage levels. In fact, for every two students that US colleges graduate with STEM degrees, only one is hired into a STEM job.24 They found that US colleges graduate 50 percent more students in engineering and computer and information science than are hired into those fields. Of the computer science graduates who do not get jobs in the information technology workforce, 32 percent say the jobs are not available, while 53 percent indicated they found better job opportunities outside the information technology industry. The conclusion is compelling that the supply of graduates is significantly larger than the demand for them in the industry. Ronil Hira, an engineer and professor of public policy at the Rochester Institute of Technology, testified before Congress in July 2012: “The STEM job market is mired in a jobs recession . . . with unemployment rates . . . two to three times what we would expect at full employment. . . . Loopholes have made it too easy to bring in cheaper foreign workers with ordinary skills . . . to directly substitute for, rather than complement, American workers. The programs are clearly displac-

Education

ing and denying opportunities to American workers.”25 STEM workers have not experienced the large wage gains that one would expect if demand significantly outran the supply of scientists and engineers, and since much of the rhetoric supporting H1-B visas for highly skilled guest workers is based on an alleged shortage, the existing data constitute a major blow to that claim. The public perception of a lack of domestic student interest in STEM subjects has significantly shaped national immigration policy, permitting colleges and universities and corporations to import thousands of foreign STEM workers willing to work for artificially low wages. The resulting oversupply of foreign workers has reduced the attractiveness of science and engineering for the best US students by driving down wages. The nature of many jobs has also changed dramatically. In engineering, the job is increasingly no longer based upon long-term career employment with one firm but for the duration of a funded project. Such dismal career prospects result in many of the best students drifting to other, more stable career paths. The claim that too few US students are interested in science and engineering often begins with an observation that US student scores in science and math, on average, lag behind several other countries. This claim is often put forward as evidence that US students perform poorly overall and that US students are lazy and ill prepared, and that the school system is failing them. However, international comparisons have their limits and sometimes result in apples-to-oranges juxtapositions including students of different ages in different grades and different definitions of student status. One must also note that the United States has the most diverse K–12 student population in the world, with large numbers of students who score very high and a large number of mostly disadvantaged minorities who tend to score low. In the most recent Program for International Student Assessment results, US students earned average scores in reading, science, and math, but students in highincome school districts had top scores. So the “averages” do not necessarily indicate an overall deficit in math and science education but a need to focus on improving the lowest-performing group of students. But if no shortage of STEM workers really exists, why do universities, the government, and tech companies such as Facebook, IBM, Microsoft, Google, and Oracle argue that student interest in the sciences has declined and that changes in immigration policy are needed? Their proposals include extending the period foreign students can work in the United States after graduation and increasing the current cap on H-1B visas (for skilled workers). They also propose the exemption of foreignborn individuals who have earned a Ph.D. from a US university in STEM fields from limits on the number of employer-based green cards and H-1B visas awarded. Robert Charette’s study concluded that companies maintain the STEM-workershortage myth primarily because it helps their bottom line. Companies would rather not pay STEM professionals high salaries with generous benefits, offer on-

195

196

Public Policy

the-job training, or guarantee years of stable employment. Having an oversupply of workers, whether US citizens or imported, is to their benefit. The belief in a STEM crisis benefits colleges and universities by allowing them to expand their taxpayersubsidized enrollments. Governments also support the myth because an excess supply of scientists is considered an important source of innovation while lowering the cost of employing scientists and engineers in the area of national defense. When US corporations claim that they need to hire foreign technical workers from other countries because they cannot find qualified US scientists and engineers, far more likely is that they cannot find them at the wage level they would prefer to pay and decide outsourcing is cheaper. This situation is not the fault of the supply or the training of US scientists and engineers. Teacher’s Unions Are an Obstacle to Student Achievement

For years after the Great Depression and World War II, unions were perceived as mainstream and enjoyed a fair amount of political legitimacy despite the apprehension expressed by business elites. President Ronald Reagan’s stand against the air traffic controllers’ strike and his probusiness politics have been a major factor in the decline in the power of unions in general, but for over a decade, teachers unions have been especially demonized by some who appear determined to blame teachers unions for all the problems of public education in the United States. Teachers unions are convenient targets for critics of a variety of educational policies. Critics often maintain that academic performance in US public schools lags because the country does not have enough “effective” teachers. In order to hire more effective teachers, first the “ineffective” teachers must be eliminated, but teachers unions protect incompetent teachers through tenure and other rules. If unions could be removed as an obstacle to reforms, including their protection of incompetent teachers, critics argue, student achievement would climb dramatically. The debate about unions can become quite contentious, but from a theoretical perspective, no definitive reason can be found to conclude that unions would either reduce or improve student achievement. Isolating the effect of unions or collective bargaining on student achievement would be extremely difficult, and no empirical or even theoretical basis exists for strong claims either way.26 But if unions really are a major cause of low educational performance, one would expect to find some consistent modest negative effects between states with strong teachers unions and student performance and a positive relationship between weak or no unions and higher student achievement. Ten states have essentially no system for collective bargaining leading to legally binding K–12 teacher contracts through teachers unions (Alabama, Arizona, Georgia, Mississippi, North Carolina, South Carolina, Texas, and Virginia have none, while only one district in Louisiana and two in Arkansas offer union contracts). Some school districts in some of the states listed above have “meet and confer” agreements regarding salary, benefits,

Education

197

and general working conditions, but administrators have the authority to break these agreements at their discretion. All these states have at best weak union representation and would, therefore, be free of alleged negative effects of the presence of unions on student achievement.27 So if teacher union contracts are the major obstacle to student achievement, then one should expect to see at least somewhat higher achievement outcomes in the ten states with no binding union contracts. In thirty-four states, districts are required to bargain with unionized teachers. In a few other states, contracts are binding once they are finished, but districts are not required to bargain. The results are essentially identical to those of the bargaining states. Matthew Di Carlo, senior fellow at the Albert Shanker Institute, used the data from the 2009 National Assessment of Educational Progress (NAEP) to present the average scales for states that had binding contracts at that time and those that did not (see Table 7.3). The averages are weighted by grade-level enrollment and include only noncharter schools (since charter schools in all states do not have to bargain with unions in the contract process). The states in which there are no teachers covered under union contracts scored lower than the states that do have union contracts. Averaging the score on each of the four exams and then averaging the four ranks provided the average rank for the states without binding contracts negotiated with teachers unions. They are: Virginia Texas North Carolina Georgia Arkansas

16.6 27.3 27.5 36.8 38.9

South Carolina Alabama Louisiana Mississippi

38.9 45.5 47.8 48.6

Table 7.3 Average NAEP Score by State Teacher Contract Laws, 2009 Scores by Grade States with binding teacher contracts 4th grade 8th grade States without binding teacher contracts 4th grade 8th grade

Math

Reading

240.0 282.1

220.7 263.7

237.7 281.2

217.5 259.5

Source: Adapted from Matthew Di Carlo’s data in Valerie Strauss, “The Real Effect of Teachers Union Contracts,” Answer Sheet, October 25, 2010, http://voices.washingtonpost.com/answer-sheet/guest-bloggers/how -states-with-no-teacher-uni.html.

198

Public Policy

Note that Virginia is the only state that scores above the median. All other states were at or near the bottom. States without union contracts are clearly not performing at a higher level than those with such contracts. If unions are the major cause of bad schools, why is their harmful effect not in evidence in the unionized schools that regularly graduate the highest-scoring students? By contrast, nine of the ten states with the highest average scores are states with collectively negotiated binding contracts including Massachusetts, which has a strong union and the highest average score on all four tests. If anything, the presence of stronger unions and collectively bargained teacher contracts seems to have a positive effect on student achievement. One might object that teacher union contracts alone cannot cause the higher scores or the lack of such contracts cause lower scores. A more convincing argument is that several factors, such as parental education, family income, and school curriculum, combined are responsible for the lower scores in the ten nonunion states. Several studies suggest the difference in performance is primarily due to economics and not to unionization. Student performance tends to be higher in affluent communities, whether or not their teachers belong to unions. For unions to get the blame as a cause of low student achievement does not make sense either. But even though cross-national comparisons require even more caveats, notably, teachers in many of the highest-performing nations in the world, such as Finland, Canada, Singapore, and South Korea, are all heavily unionized.28 Matt Miller, a writer for the Washington Post who has been critical of teachers unions, has noted, “The top performing school systems in the world have strong teachers unions at the heart of their education establishment.”29 Anyone who is intellectually honest has to acknowledge it: “The United States is an outlier in having such deeply adversarial, dysfunctional labor-management relations in schooling.”30 Since the claim that unions are a major reason for reduced student achievement is speculative at best, it raises the suspicion that the “negative teachers union” hypothesis is largely a pretext to disguise antiunion sentiment. Presidential nominee Mitt Romney made clear his opposition to teachers unions contributing money to political campaigns because he believed they are self-interested and not looking out for the welfare of the students, but he had no problem with private corporations like Microsoft, who support their bottom line by lobbying to sell computers to school systems, from contributing to political campaigns. The Republican Party platform in 2012 also called for the enactment of a national right-to-work law, and Republican governors in several states, including Florida, Idaho, Indiana, Nevada, and New Jersey, have called for the elimination of tenure for public school teachers, a position that would surely be resisted by unions as well as most teachers. Money Does Not Matter

Many have argued that improving the quality of schools has little to do with the amount of money spent on public education. That is, that money simply does not

Education

matter. Especially since the Great Recession, many states have cited the need for public schools to “tighten their belts.” Tax revenues fell sharply in the Great Recession and the slow recovery continues as a drag on state revenues. Persistently high unemployment rates have left people with less income and reduced purchasing power, so states are taking in less income and sales tax revenue, the principal sources of revenue used to finance public education. To a significant degree, the increased rhetoric reflects the constrained economic conditions as well as political pressures on politicians to justify their effort to redistribute fewer dollars with the least amount of recrimination. For instance, in an interview with New Jersey governor Chris Christie, the Wall Street Journal reported, “According to Mr. Christie, New Jersey taxpayers are spending $22,000 per student [per year] in the Newark school system, yet less than a third of these students graduate, proving that more money isn’t the answer to better performance. He favors more student choice, which is why he’s ramping up approvals for charter schools.”31 Political debates frequently wander from tight logical arguments and justification based on empirical research, but Christie’s statement goes beyond raising a question regarding the relationship between funding and student achievement to the claim that money is not related to student performance. A study by Bruce Baker titled “Revisiting the Age-Old Question: Does Money Matter in Education?” summarizes several empirical studies about how schools spend money to empirically improve student outcomes.32 In brief, the studies demonstrate that money does matter. Clearly, other factors are also involved, and the money must be spent wisely to produce benefits. This idea is not implemented in the public policy of many states. A report by the Center on Budget and Policy Priorities in 2013 reported that states relied overwhelmingly on spending cuts to close the large budget shortfalls they have faced over the last several years.33 Between fiscal years 2008 and 2012, states closed 45 percent of their shortfalls through spending cuts and only 16 percent of the shortfalls through taxes and fees (the rest was made up with federal aid, reserves, and other measures).34 Over half the states reduced education funding by more than 10 percent. Drawing on the empirical evidence in the studies, Baker came to several conclusions.35 First, as already noted, money matters. Second, money spent to provide instructional materials, reduce class sizes, and increase teacher salaries is positively associated with student outcomes. Third, and last, substantive and sustained reforms to state school finance systems, including raising the level of funding or redistributing money more equitably, can lead to improvements in the level and distribution of student outcomes.36 Baker noted that money can be spent poorly and have limited influence or be spent wisely and have significant positive influence, but money that is not available can do neither. Both Governors Chris Christie of New Jersey and Rick Perry of Texas have slashed state funds particularly in poorer school districts where presumably the return on investment was not as high, but were later forced by court decisions to

199

200

Public Policy

increase funding in those same schools.37 Governor Jerry Brown of California stands out in raising taxes in California to restore school funding to prerecession levels. He is targeting additional funding for school districts with more at-risk learners. Brown maintained, “Equal treatment for children in unequal situations is not justice.”38 Secretary of Education Arne Duncan praised Brown’s courage and noted that given how US schools have historically been funded, Brown’s actions are “actually revolutionary.” The United States Is Losing Its Edge in Economic Competitiveness

In the 1940s through the 1970s, the US economy was generally conceded to be the most productive, innovative, and competitive in the world. The US workforce was the most educated the world had ever known. Average household incomes soared while a growing middle class thrived. For many, Sputnik was seen as a blip on the screen that galvanized the United States to reassert itself to put a man on the moon before the Soviet Union. By the turn of the twenty-first century, the US economy’s ability to maintain its preeminent position was obviously facing serious difficulties. Other countries invested in workforce education, and US business, especially in the area of manufacturing, lost ground to foreign nations that invested heavily in modern factories and equipment and other infrastructure. US corporations also discovered that they could outsource many jobs to cheaper foreign labor, and as a result, job growth in this country slowed and incomes stagnated. That developing economies would grow more rapidly than developed economies was not unexpected, and, in fact, as is often noted, the United States is better off in the current world of developed nations than in one in which the vast majority of the world population lived in poverty. However, a fear is growing that future generations of US residents will not enjoy a higher standard of living than exists today.39 The World Economic Forum introduced the first Global Competitiveness Index in 2004. In the report of 2008–2009, the United States ranked first among 144 world economies but subsequently slipped to ninth place before moving back to seventh place in 2012, and climbed back to fifth place out of 148 economies in 2013.40 The index defines “competitiveness” as the set of institutions, policies, and factors that determines the level of productivity in a country. The scores are calculated by drawing together country-level data covering twelve categories, called the “pillars of competitiveness,” which together provide a picture of a country’s competitive strengths and weaknesses. The twelve pillars are institutions, infrastructure, macroeconomic environment, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market development, technological readiness, market size, business sophistication and innovation, and labor market efficiency. Innovation is critical in terms of an economy’s ability to foster future prosperity.

Education

The Global Competitive Index report in 2013 noted that the United States continues to be a world leader in bringing innovative products and services to market. It further stated that the US ranking was helped in 2012 by a perceived improvement in the country’s financial markets and greater confidence in its public institutions. However, serious concerns remained over its macroeconomic stability, a category in which the United States was ranked 117 out of 148 economies.41 While the World Economic Forum’s report did not call out politicians by name or make any endorsement, the report did convey its concern by indicating that the ranking reflects “the inability of leaders to address the many challenges that were already present last year. The political brinkmanship in the United States continues to affect the outlook for the world’s largest economy.”42 The point is that the organization praised the United States for still being a leader in innovation but voiced concern over the political polarization, with threats to shut the government down over the debt ceiling, the budget, and the Affordable Care Act. President Obama has often indicated that in the future, international prosperity will depend on the US ability to continue as an “innovation economy.” In fact, the president’s economic recovery package included additional spending for areas favored by innovation policy advocates, including higher research and development spending. Research by economists Daron Acemoglu and James Robinson of the Massachusetts Institute of Technology suggests that the United States, not China, will continue to be the technology and innovation leader. The odds favor the United States not only because it is technologically more advanced than China, with a percapita income more than six times that of China, but also because innovation ultimately depends on a country’s institutions.43 They stated that inclusive political institutions distribute political power equally in society and constrain how that power can be exercised. China lacks the kind of inclusive political institutions, such as those in the United States, that promote innovation. But their worry was similar to the World Economic Forum’s when they wrote, “But money and inequality and money’s influence on political power threaten American innovation.”44 The United States Has a High School Dropout Crisis

Policy concern over high school dropouts stems primarily from the importance of having an educated workforce. Throughout most of the twentieth century, one could see a clear trend of each new cohort of individuals being more likely to graduate from high school than the preceding one. Higher graduation rates correlated with increased worker productivity and healthy economic growth. Students who drop out of school before completing their high school education exact a high cost on themselves and US society. Higher rates of unemployment and growing income differentials between high school dropouts and graduates have

201

202

Public Policy

increased the economic incentives to graduate from high school. The real wages of high school dropouts have declined over the past thirty years, while those of more skilled workers have risen. The average annual income of dropouts is approximately 66 percent of the income of high school graduates ($20,241 vs. $30,627 in 2011).45 Women who drop out of high school are more likely to become pregnant at an early age and to become a single parent.46 In 2012, teen birthrates reached historic lows. Between 2010 and 2011, births among girls between the ages of fifteen and nineteen decreased by 8 percent and declined an additional 6 percent between 2011 and 2012. However, teen pregnancy rates in the United States remain among the highest in the industrialized world. Almost two-thirds of births among women under age eighteen and over half of births to those aged eighteen to nineteen are unintended.47 Teenage mothers are less likely to finish high school and are more likely than their peers to live in poverty, require public assistance, and be in poor health. Their children are more likely to suffer health and cognitive disadvantages, live in poverty, come in contact with child welfare and correctional systems, drop out of high school, and become teen parents themselves. The National Campaign to Prevent Teen and Unplanned Pregnancy found that the annual public cost of teen childbearing—due to increased costs of public health care, foster care, incarceration, and lost tax revenue—is nearly $11 billion.48 For all these reasons, graduation rates are an important indicator of the performance of the school system. The completion of high school is usually required for accessing postsecondary education and is a critical requirement for most jobs. As a nation, we should try to reduce the dropout rate and increase the graduation rate. High school graduation rates did not reach 50 percent until 1940, but then declined during World War II as many men left high school to join the military. The rates began climbing again after the war, reaching 74 percent by 1990 and 78.2 percent in 2010.49 Graduation rates were also up for all ethnic minority groups and have jumped by ten percentage points for Hispanic students since 2006. The US Department of Education uses the four-year completion rate as the national standard, a standard that produces the lowest possible statistical graduation rate by counting only those that graduate with their cohorts. Many young people must take an additional course or two to complete their graduation requirements and get a diploma in August rather than June. Other students may take an additional year, while others earn a general equivalency degree (GED). When the Census Bureau took a count of high school graduates in the eighteen-to-twentyfour-year-old age group, it reported that 90 percent have a high school diploma.50 Regarding whether the dropout rate is getting worse or approaching a crisis, trends are important. The federal data indicate that total dropout rates for all individuals have trended downward between 1972 and 2009 from 15 percent to 8 percent. Among Asian/Pacific Islanders the dropout rate was the lowest at 3 percent.

Education

Among whites the dropout rate declined from 12 percent in 1972 to 5 percent in 2009. The black dropout rate declined from 21 percent in 1972 to 9 percent in 2009. The Hispanic dropout rate was 34 percent in 1972 but declined to 18 percent by 2009.51 In fact, the dropout rate has been cut by about 40 percent overall between 1972 and 2009 and is still trending downward. The United States is making progress, though other countries are overtaking this country. The increase in graduation rates is not as steep as in many other countries in the Organisation for Economic Cooperation and Development because our graduation rate is already so high. Although optimally, 100 percent of students would graduate from high school, the United States does not have a high school dropout crisis. Russell Rumberger, leader of the California Dropout Research Project, wrote that the best way to reduce the dropout rate would be to desegregate schools, because racial segregation and poverty are main contributors to dropping out. Minority students who attend high-poverty, racially isolated schools are most likely to drop out. Public policy directed toward strengthening families and communities by reducing poverty and racial segregation would reduce their motivation to drop out from school.52

Assessing Public School Reform The Elementary and Secondary Education Act (ESEA) was first enacted in 1965 as a component of the War on Poverty. The original ESEA program was designed to offset the inequality of per-pupil spending within states.53 The first program to provide significant federal funds targeted toward educationally disadvantaged children from kindergarten through twelfth grade, the act was originally authorized through 1970, but it had been reauthorized a total of eight times as of 2009. The basic purpose of the law—to assist disadvantaged students—remains. The act, the central federal law in precollegiate education, has funded Head Start, Native American education, bilingual education, class-size reduction, and education technology. President George W. Bush signed the bill reauthorizing the ESEA, renamed No Child Left Behind (NCLB), in January 2002. During the presidential campaign in 2000, Bush claimed that testing and accountability had led to a “Texas miracle” in that test scores and graduation rates were climbing while the inequality achievement gap was narrowing. Subsequently, the “Texas miracle” was proven false. Texas schoolchildren continued to register around the national average, certainly nowhere near the top. The NCLB law dramatically expanded the federal role in education by requiring that all fifty states administer standardized tests for all students in grades 3 through 8 annually in reading and mathematics and report test scores, paying attention to race, ethnicity, low-income and disability status, and limited proficiency in

203

204

Public Policy

English. Under the original law, states were required to demonstrate their schools achieved what was called “adequate yearly progress” each year so that by the end of the 2013–2014 school year, 100 percent of students would need to attain a status of “proficient”!54 States were required to monitor every school to make sure every group was on track to attain proficiency. Any school that persistently failed to meet its target would face increasingly punitive sanctions. If provisions of NCLB were not met by May–June of 2014, schools faced reductions in federal funding and were at risk of having their teaching staffs fired and the schools given over to state control or sold to private charter school management. Another irritant was that schools that received a failing grade in one state could have attained a passing grade in another state with historically lower test results. In short, NCLB contained only sticks, no carrots. So many schools “failed” year after year that by 2011, the US Department of Education began offering states the opportunity to request a waiver to relieve them from meeting certain elements of NCLB. States could obtain a waiver in exchange for the development of comprehensive plans to improve educational outcomes for students and for plans to close achievement gaps between high- and lowperforming students.55 Waivers were granted for one year only, although a subsequent waiver could be requested. A major point of contention is that by legislative fiat, all students must be proficient in reading and mathematics by the end of the 2013–2014 school year, including students for whom English is a second language, students living in poverty who may also be homeless, students with special needs, students living in dysfunctional homes, and students with every social advantage but indifferent to academic pursuits. If they are not proficient by 2014, then their schools and teachers, at least according to the law, must be at fault and will suffer the consequences. Student and school progress and proficiency is determined by annual standardized testing. The basic premise of the reform movement is that the US public should expect each and every public school can make 100 percent of its students as proficient as the best students anywhere in the world regardless of the negative situation of any school’s particular students or even the school’s available resources.56 The assumption is that a lack of teacher “accountability” is the major education problem. Failure to meet the goals is taken as evidence that the teachers and schools have failed the students. Ignoring family economics, which studies consistently show is a key variable in student achievement, serves many political interests. When those goals are not met, education, technology, and charter school companies and their financial backers point to troubled public schools and argue that the public education system is flawed, but education can be improved if taxpayer money is diverted from the public school system’s priorities (hiring and training teachers, reducing class size, etc.) and directed into the private sector (replacing teachers with computers, replace public schools with private charter schools, etc.).

Education

For conservative politicians and business lobbyists, the “reform” argument provides a way for them to embrace the need to “fix” education and slam teacher’s unions, without mentioning the support of the financial interests who have an economic stake in taxpayer money being redirected toward them.57 Even though many of the policies of the “reformers” have failed in dramatic fashion, the media cast the actions as laudable. For example, a study in 2009 of the 4,700 charter schools in existence at that time found that 17 percent of the schools scored significantly better than the public schools they were created to replace. However, 37 percent showed gains that were worse than their traditional public school counterparts, with 46 percent showing no significant difference when compared to their public school counterparts.58 Despite all the taxpayer money directed to charter schools with no evidence of improvement, in 2013, the United States contained 6,100 such institutions. In a second example, Rahm Emanuel, the mayor of Chicago and the former White House chief of staff under President Obama, cited budget austerity to justify shutting down fifty of that city’s public schools in order to save over $500 billion, half of the deficit. About 90 percent of the 30,000 affected students are African American. At the same time, the mayor proposed spending $100 million of tax revenues on a private sports stadium.59 By the end of 2011 empirical data ruled out some apocryphal theories and highlighted the fundamental problems. As has been discussed, the entire education system is not “in crisis.” In fact, US students in low-poverty schools are among the highest achieving students in the world.60 Another study showed that a family’s economic situation is the largest factor in determining a child’s academic performance. For poor children, the intensifying hardships of poverty create major hurdles to academic progress.61 Therefore children in the most destitute areas need more resources to overcome their more oppressive situation. However, a report from the US Department of Education noted that “many high-poverty schools receive less than their fair share of state and local funding . . . and leave students in high-poverty schools with fewer resources than schools attended by their wealthier peers.”62 According to a more recent Department of Education study, “about one in five public schools was considered high poverty in 2011 . . . up from about one in eight in 2000.”63 Consequently, less funding is available to hire teachers, reduce class sizes, and upgrade the classrooms in poor schools than those in more affluent areas. The Department of Education study contains an overwhelming collection of data showing that problems in the educational system have far less to do with public schools or ineffective teachers than with the problem of economic inequality and oppressive poverty.64 In addition, concluding that the recession and cutting of funds, particularly for poor schools, only coincidentally occurred at the same time would be naïve. Empirical research now makes obvious that any discussion of educational reform must consider the income achievement gap. Sean Reardon of Stanford Uni-

205

206

Public Policy

versity produced a comprehensive study that documented the impact of income inequality on children’s academic performance in school.65 The study provided conclusive evidence that family income is by far the biggest determining and predictive factor in a student’s educational achievement. The achievement gap, the difference in the average standardized scores between children in the top 10 percent of income distribution and children at the bottom 10 percent, “is now nearly twice as large as the black-white achievement gap. Fifty years ago in contrast, the black-white gap was one and a half to two times as large as the income gap.”66 His research found that the income achievement gap does not narrow or widen during the entire time children are in school, suggesting that a large part of the processes that are responsible for the gap happen in early childhood before kids enter into kindergarten. The income achievement gap has grown, according to Reardon, as the income gap has grown since the early 1970s. Also, higher-income families have greater socioeconomic resources that benefit their children and can invest more time and resources into promoting their children’s “cognitive development” than poorer families. Finally, income inequality has led to more residential segregation by income level rather than race, which means that high-income children have access to higher quality schools and other resources.67 Secretary of Education Arne Duncan reinforced Reardon’s research when he wrote in a 2013 newspaper article that more must be done to ensure that children from disadvantaged families “begin kindergarten at the same educational starting line as do children from better off families.”68 He stated the president’s plan includes a cost-sharing arrangement with states, with a federal investment of $75 billion covered by a new cigarette tax and with incentives for states to make programs available for more middle-class families. He wrote that The best scientific evidence for long-term effects of early education comes from studies of multiyear programs dating to the 1960s and 1970s, a recent study of New Jersey students who received one year of high-quality public preschool found that by fifth grade, they were less likely to be held back or placed in special education. . . . [M]ore recent long term assessments of public preschool consistently indicate similar benefits including increased graduation rates and reduced arrest rates.69

A thorough survey of decades of social science research by Joanne Barkan also concluded that nonschool factors like family and location on the income scale were the most important contributors to academic achievement. Out-of-school factors—family characteristics such as income and parents’ education, neighborhood environment, health care, housing stability, and so on—count for twice as much as all in-school factors. In 1966, a groundbreaking government study—the “Coleman Report”—first identified a “one-third in-school factors, two-thirds family characteristics” ratio to explain variations in student achievement. Since then re-

Education searchers have endlessly tried to refine or refute the findings. Education scholar Richard Rothstein described their results: “No analyst has been able to attribute less than two-thirds of the variation in achievement among schools to the family characteristics of their students.70

Diane Ravitch, a noted education historian, was a supporter of the NCLB law until a variety of academic studies from scholars across the political spectrum found that none of the prescribed remedies were working. Since reading and math were to be tested each year in calculating a school’s yearly progress, less time was given to other subjects, including history, science, geography, and the arts, and even math and reading were often given short shrift as instruction was focused on intensive test preparation. Test-taking skills and strategies took precedence over actually learning and developing math and reading skills. Test-taking drills became part of the “academic” routine. Not surprisingly, empirical research did not take long to verify the judgment of almost all teachers, principals, and parents: incentive programs aimed at raising standardized test scores were largely unproductive in producing increased student achievement. An expert panel of the National Research Council found that standardized tests commonly mandated by the NCLB law “fall short of providing a complete measure of desired educational outcomes in many ways.”71 The panel said the test scores in some cases may actually give an inflated picture of what the students actually know. When teachers have incentives to emphasize material that will be on the test, understanding of untested material can deteriorate. A five-year University of Maryland study found that the pressure teachers were feeling to “teach to the test” since NCLB was leading to declines in teaching higher-order thinking and in the actual amount of high cognitive content in the curriculum.72 Other studies cast doubt on the reliability of the value-added method of teacher/principal evaluation, which places student test scores into a formula that is supposed to factor out other influences and place a “value” on what the teacher has brought to a student’s learning.73 The NCLB program, which has proven to fall far short of expectations in the realm of education, has been a huge success in the area of windfall corporate profits. The National Association of State Boards of Education estimated that properly funding the testing mandate costs anywhere between $2.7 billion and $7 billion.74 The NCLB requires states to produce “interpretive, descriptive, and diagnostic reports,” which are primarily published by a few dominant providers of testing materials and textbooks, including McGraw-Hill and Houghton Mifflin. Nationally over 1,800 approved providers supply supplemental educational services.75 Corporate managers and their lobbyists presumably serve their stockholders, not the students, by working to make as large a profit as possible. NCLB technically expired in 2007. Congress typically passes laws with the intent to allow them to lapse after a set time period, usually five years. Theoreti-

207

208

Public Policy

cally this process should motivate Congress to update a law based on its history since implementation. However, if Congress does not update the statute, it remains in force pending a legislative update incorporating revisions. Thus, even after many professional educators have pointed out several major flaws in the legislation, it is still driving what goes on in public schools. The Obama administration indicated that it would be flexible in granting one-year waivers to states unable to meet the 100 percent proficiency goal by 2014, if the application included a reasonable plan to pursue the goals of proficiency in math and reading. The administration also signaled that subsequent waivers would be considered. Since the bipartisanship that surrounded the passage of the bill in 2002 has evaporated, the bill is not likely to be reauthorized before 2015. Meanwhile, it remains in place but widely criticized.76

Common Core State Standards The Obama administration, from the beginning, was critical of a provision of the NCLB law that permitted states to set the level of the bar from which they would measure their progress toward proficiency. The effect, according to the administration, was a race to the bottom, where each state independently set the benchmark for their own starting point. The result was that there were fifty different standards for progress. The new goal was to provide common, career-oriented, internationally benchmarked standards. Secretary of Education Arne Duncan said the hodgepodge of differing state standards and tests made a mockery of NCLB’s goal of students’ proficiency in math and reading by 2014. In some states, students met the state standard but could barely graduate from high school, let alone be adequately prepared to go to a competitive college or university. The rationale for the Common Core is that it is designed to promote more critical thinking as opposed to rote memorization and to prepare high school graduates to immediately enter college. The idea of the Common Core grew from the notion that the creation of common standards was key to improving student achievement, closing equity gaps, and regaining the nation’s position as a global education leader. States and school districts agreed to implement the Common Core, which continues to force testing as under NCLB, using standards that have not been validated. Without acceding to the Common Core requirements including testing, schools could not get Race to the Top grants or waivers from NCLB. Proponents of the Common Core program claim that it is a vast improvement over NCLB and is not just another “fad” in education. Unlike NCLB and its obsession with standardized testing that turned many classrooms into “test prep” factories, the Common Core focuses on the comprehension and use of complex texts, problem solving, and purposeful written and oral communication. Supporters also claim that the Common Core focuses attention on the persistent inequality in US

Education

education and creates a basis for educational equity throughout the United States. Until now, they claim, US education has had a patchwork of different state and local standards that have obscured inequalities of class and race in US education. They believe that under the Common Core, the decisions in state capitals to starve schools of needed resources will be more difficult to camouflage. The sequential nature of the standards, with performance benchmarks building upon earlier learning, will create a coherent educational experience for students from kindergarten through twelfth grade. While the development of logical reasoning skills is important for all students, it is particularly important for those in poverty.77 Advocates of the Common Core claim that it has the potential to empower teachers to improve their craft and the teaching profession because the program sets out performance standards for what students should know and be able to do in a subject. It does not prescribe either what teachers should teach or how they should teach or work with their students to achieve these standards. By requiring students to develop richer understandings of the subjects they are studying, the Common Core tacitly breaks with the “factory model” and the “test prep” debasement of education.78 Many critics fear that Common Core is another version of NCLB, where the federal government and corporate reformers dominate what has traditionally been a locally controlled educational system.79 In fact, the Bill and Melinda Gates Foundation financed the Common Core for the National Governors Association. They have also provided testing materials, as they did for NCLB, that they hope to sell to measure progress in the Common Core by the states. In an attempt to circumvent the opposition to the adoption of a national curriculum, the word state was inserted in the name, so that it became the “Common Core State Standards.”80 Corporations and foundations compete for large shares of federal funds to compare the statewide performance of children in Massachusetts and Florida, but how public school children benefit is not clear. NAEP has been making these comparisons for years.81 Because of budget cuts since 2007, public school class sizes are larger with fewer teachers, teachers’ assistants, and librarians to support the students. As more federal money is diverted to testing and accountability, less money is available for actual instruction, which is the primary purpose of schools. Educational priorities should be reexamined.

Obama’s College Plan While campaigning in 2012, Obama said he was on a “personal mission” to make college education more affordable. However, a key factor in rising college costs is a trend Obama has little power to change, namely a sharp decline in state funding for all public education, including public colleges and universities. States face the challenge of reinvesting in public colleges and universities and reversing several

209

210

Public Policy

years of damaging cuts to higher education. In the depths of the recession, with reduced tax revenues being received, governors often relied on spending cuts to the public university systems to make up for lost revenues. To compensate for lost state funding, public colleges, which enroll a large majority of the nation’s postsecondary students, have sharply increased tuition and have reduced spending. While tuition costs were climbing, median family income shrank. Prices in public university systems have grown far faster than in private colleges and universities because those institutions are not so dependent on dwindling state aid. In the ultimate dilemma, everyone is aware that education is the surest way up the economic ladder, but for middle- and lower-income students, the cost of college is increasingly unaffordable. In 2013 the average college graduate had about $30,000 in debt,82 but that average masks large variations. The Federal Reserve Bank of New York reported in 2013 that almost 13 percent of student-loan borrowers of all ages owed more than $50,000, and 4 percent owe more than $100,000.83 These debts are often beyond the borrowers’ ability to repay, especially in the exceedingly slow economic recovery. The result is that 30 percent of borrowers were more than ninety days behind on their loan payment. With soaring college costs, total student debt at about $1 trillion dollars surpassed total credit card debt in 2012.84 The rate of enrollment of US students in college has fallen behind most other OECD countries. The rising costs of US universities and the lack of financial assistance to offset the increase are major factors. The US is one of four countries that did not increase its spending per student at all from 2000 to 2008. At the same time, eight countries, including South Korea and Mexico, increased their spending by 50 percent or more.85 However, the United States is still a very attractive country for foreign students. The rate of employment for US college students still is higher than in many other industrialized countries. President Obama was not successful in persuading Republicans to go along with a measure to keep student loan interest rates at 3.6 percent before the law expired in July 2013, doubling student interest rates to 6.8 percent. Under a compromise agreement in August, subsidized Federal Stafford Loans would be available to undergraduates at 3.9 percent in 2013, graduate students at 5.4 percent, and parents at 6.4 percent. Interest rates could climb in subsequent years.86 The compromise is effective through the 2015 academic year. After that, interest rates are expected to climb to the level of ten-year Treasury notes. More important are the repayment options the government now extends to low-income borrowers, options championed by Obama. Student borrowers will never be required to pay more than 10 percent of their disposable income in debt service (which is the cash required to cover the repayment of interest and principal on a debt), and the government will forgive any remaining loan balance after twenty years, if the borrowers qualify.87 These repayment options bring the US student loan program more in line with sev-

Education

eral OECD countries’ policies. Bear in mind that student debt is a much greater problem in poor rather than wealthy families. Those concerned about what growing inequality is doing to the US ideal of equality of opportunity and the moral character of an equal society should put dealing with student debt and expanding college affordability at the top of any reform agenda.

Conclusion Citizens have relied upon the US public education system to level the playing field between different income levels to provide opportunities for learning, promote social mobility, and inculcate democratic values. The United States was the unquestioned leader of the world in investing in its most precious resource of human capital. The public educational system has helped end child labor, educated returning veterans after wars, led the struggle for integration, and worked to support students with special needs. The public school system has provided a sound foundation for US democracy and economic prosperity. Following the 1983 report titled A Nation at Risk, attitudes toward public education began to shift dramatically against the public education system. The report charged that public education was an unmitigated disaster threatening the very survival of the nation. It was an invitation for policymakers and other interest groups to get involved in the struggle to save the nation by reforming education. The result has been, since the 1980s, various educational fads being imposed in a top-down fashion and legislation that imposed high-stakes testing with the continued survival of “public” institutions at stake. Schools in which students did poorly could be shut down and students dispersed to “private” institutions through vouchers, while the supports that students need to achieve were ignored. A more competitive corporate model was held up as preferred to the cooperative collaborative model of public education. The use of the term privatize was discouraged in favor of the more democratic-sounding choice that was being given to students. This approach, along with years of financial cuts and diverting public monies to corporations providing testing and other materials, discouraged teacher creativity and turned schools into depressing institutions. Teacher, parent, and community views were often shut out of the debate. Many educators reacted to the deprofessionalization of teaching by outside interests by leaving the profession. The NCLB law not only centralized control of public education in Washington, but validated the false narrative that public education was failing. The myth of a crisis provided the opening for corporations to claim that they could achieve what government is incapable of achieving, an efficient private business model for education. They argued that spending such large sums of money was not necessary for good educational outcomes. Rather “choice” was more important than pouring money into education. Teachers and teachers unions were cited as major obstacles.

211

212

Public Policy

Years of empirical research since NCLB was passed in 2001 uncovered several myths surrounding education. Research has also made clear that schools cannot overcome the systemic problems of our society, and NCLB has actually exacerbated several problems. Stressing standardized testing often has negative effects. When a neighborhood school is defined as failing and is subject to closure, students may be given vouchers to shop for another school that will accept them. The school chooses, not the student. Public education is a public good and an essential part of US democracy. It should not be undermined by private control and corporate profits. Only an adequately funded public school system can ensure that every student receives a quality education. The education should be for all regardless of the economic level of the community. The society must invest in research-proven intervention to provide preschools, especially for middle- and low-income families, and encourage and support every child’s educational aspirations through college. Teachers are professionals and must receive the support necessary to help all students reach their full potential. Corporate test providers claim that student progress can be measured in a single high-risk assessment test with important outcomes for the student, the teacher, and the school, but they are wrong. More importantly, however, that scenario interferes with the teacher’s autonomy and creativity to enrich student understanding through covering educational material rather than teaching to the test. Punitive high-stakes testing attempts to force progress on the cheap with an invalid metric. No cheap shortcuts can be taken to a high-quality public education system. Providing adequate funding for schools is in the national interest. National educational policy must be to complement local control with equitable financing.

Notes 1. US Department of Education, “The Federal Role in Education,” February 13, 2012, http://www2.ed.gov/about/overview/fed/role.html. The federal contribution to elementary and secondary education includes funds not only from the Department of Education but also from other federal agencies, such as the Department of Health and Human Services’ Head Start program and the Department of Agriculture’s school lunch program. 2. Alec Tyson, “Many Americans Say Educational System in Need of Overhaul,” Pew Research Center, August 13, 2013, http://www.pewresearch.org/fact-tank/2013/08/13/many -americans-say-educational-system-in-need-of-overhaul/. 3. Tyson, “Many Americans Say.” 4. Gerald W. Bracey, “The First Time ‘Everything Changed,’” Phi Delta Kappan 89, no. 2 (October 2007): 119–136. 5. Ibid. 6. Ibid., p. 120. 7. Ibid., p. 121. 8. The National Commission on Excellence in Education, A Nation at Risk: The Imperative for Educational Reform, April 1983, http://www2.edgov/pubs/NatAtRisk/index.html.

Education 9. No Child Left Behind Act of 2001, Pub. L. No. 107-110, 115 Stat. 1425 (2002). 10. Adam Smith, The Wealth of Nations, ed. Edward Cannon (New York: G. P. Putnam’s Sons, 1877), book 2, chap. 1, p. 377. Smith did not develop this idea beyond the statement quoted. Theodore Schultz and Gary Becker are usually given credit for developing the “human capital theory.” See Theodore W. Schultz, “Investment in Human Capital,” American Economic Review 51 (March 1961): 1–17; and Gary Becker, Human Capital (New York: National Bureau of Economic Research, 1964). 11. Roe J. Johns, Edgar L. Morphet, and Kern Alexander, “Human Capital and the Economic Benefits of Education,” in Kevin J. Dougherty and Floyd M. Hammack, eds., Education and Society (New York: Harcourt Brace Jovanovich, 1990), pp. 13–14. 12. Obama Administration Record on Education, White House, Statement July 18, 2011, http://whitehouse.gov/sites/default/files/docs/education_record.pdf. 13. Thomas Jefferson letter to Joseph C. Cabell dated January 14, 1818, as found in “Quotations on Education—Thomas Jefferson’s Monticello,” http://www.monticello.org/site /Jefferson/quotations-education#footnote7_az4rwep, accessed March 25, 2014. 14. Thomas Jefferson letter to Charles Yancey dated January 6, 1816, as found in “Quotations on Education—Thomas Jefferson’s Monticello.” 15. Dougherty and Hammack, Education and Society, p. 248. 16. Ibid. 17. Ibid. 18. Christopher S. Jencks et al., Who Gets Ahead? (New York: Basic, 1979), pp. 224–227. For more recent confirming research, see Sanders Korenman and Christopher Winship, “A Reanalysis of the Bell Curve: Intelligence, Family Background, and Schooling,” in Kenneth Arrow, Samuel Bowles, and Steven Durlauf, eds., Meritocracy and Economic Inequality (Princeton, NJ: Princeton University Press, 2000), pp. 136–178. See also Samuel Bowles and Herbert Gintis, “Does Schooling Raise Earnings by Making People Smarter?” in Arrow, Bowles, and Durlauf, Meritocracy and Economic Inequality, pp. 118–136. 19. Pierre Bourdieu and Jean-Claude Passeron, “The School as a Conservative Force: Scholastic and Cultural Inequalities,” in John Eggleston, ed., Contemporary Research in the Sociology of Education (London: Methuen, 1974), pp. 32–46. 20. Sean F. Reardon, “The Widening Academic Gap Between the Rich and the Poor: New Evidence and Possible Explanations,” July 2011, http://cepa.stanford.edu/sites/default /files/reardon%20whither%20opportunity%20-%20chapter%205.pdf, accessed April 4, 2014. 21. Hal Salzman, Daniel Kuehn, and B. Lindsay Lowell, “Guestworkers in the HighSkill U.S. Labor Market: An Analysis of Supply, Employment, and Wage Trends,” Economic Policy Institute (April 24, 2013), p. 1, http://www.epi.org/publication/bp359-guest workers-high-skill-labor-market-analysis/. 22. National Research Council, Assuring the U.S. Department of Defense a Strong Science, Technology, Engineering, and Mathematics (STEM) Workforce (Washington, DC: National Academy of Sciences, 2013), p. 5, http://www.nap.edu/openbook.php?record_id=13467&page=5. 23. Robert Charette, “The STEM Crisis Is a Myth,” IEEE Spectrum, August 30, 2013, p. 2, http://spectrum.ieee.org/at-work/education/the-stem-crisis-is-a-myth. 24. Salzman et al., “Guestworkers in the High-Skill U.S. Labor Market,” p. 1. 25. As quoted in Beryl Lieff Benderly, “What Scientist Shortage?” Columbia Journalism Review, January 17, 2012, http://www.cjr.org/reports/what_scientist_shortage.php?page=all. 26. Matthew Di Carlo, “The Teachers’ Union Hypothesis,” Shanker Blog, Voice of the Albert Shanker Institute, October 21, 2011, http://shankerblog.org/?p=3509.

213

214

Public Policy 27. Valerie Strauss, “The Real Effect of Teachers Union Contracts,” Answer Sheet, Washington Post, http://voices.washingtonpost.com/answer-sheet/guest-bloggers/how-states -with-no-teacher-uni.html, accessed March 25, 2014. 28. Di Carlo, “The Teachers’ Union Hypothesis.” 29. Matt Miller, “Romney vs. Teachers Unions: The Inconvenient Truth,” Washington Post, May 30, 2012, http://articles.washingtonpost.com/2012-05-30/opinions/35455632_1 _teachers-unions-education-reform-community-mitt-romney. 30. Ibid. 31. James Freeman, “New Jersey’s ‘Failed Experiment,’” Wall Street Journal, April 17, 2010, http://online.wsj.com/article/SB10001424052702303348504575184120546772244.html. 32. Bruce D. Baker, Revisiting the Age-Old Question: Does Money Matter in Education? (Washington, DC: Shanker Institute, 2009), pp. 1–37. 33. Phil Oliff, Vincent Palacios, Ingrid Johnson, and Michael Leachman, Recent Deep State Higher Education Cuts May Harm Students and the Economy for Years to Come (Washington, DC: Center on Budget and Policy Priorities, 2013), pp. 1–12. 34. Ibid. 35. A partial listing of the sources Professor Baker analyzed includes the following: David Card and Alan Krueger, “School Resources and Student Outcomes: An Overview of the Literature and New Evidence from North and South Carolina,” Journal of Economic Perspectives 10, no. 4 (Fall 1996): 31–50; James Coleman, Ernest Campbell, Carl Hobson, James McPartland, Alexander Mood, Frederick D. Weinfeld, and Robert L. York, Equality of Educational Opportunity (Washington, DC: US Office of Education, 1966); S. Konstantopolous and G. Borman, “Family Background and School Effects on Student Achievement: A Multilevel Analysis of the Coleman Data,” Teachers College Record 113, no. 1 (2011): 97–132; G. Borman and M. Dowling, “Schools and Inequality: A Multilevel Analysis of Coleman’s Equality of Educational Opportunity Data,” Teachers College Record 112, no. 5 (2003): 1201–1246; J. Betts, “Is There a Link Between School Inputs and Earnings? Fresh Scrutiny of Old Literature,” in Gary Burtless, ed., Does Money Matter? The Effect of School Resources on Student Achievement and Adult Success (Washington, DC: Brookings Institution, 1996), pp. 141–191. 36. Baker, Revisiting the Age-Old Question, p. 2. 37. See Will Weissert, “Texas School System Finance Plan Is Unconstitutional, Judge Rules,” Huffington Post, February 14, 2013, http://huffingtonpost.com/2013/02/05/texas -school-system-finan_n_2622002.html?ir=Education&ref=topbar. Also David Voreacos, Terrence Dopp, and David Glovin, “New Jersey Supreme Court Orders Christie to Restore Some School Fund Cuts,” Bloomberg News, May 24, 2011, http://www.bloomberg.com /news/2011-05-24/christie-s-fight-to-remove-school-funds-overruled-by-new-jersey-high -court.html. 38. Tim Dickinson, “Jerry Brown’s Tough-Love Miracle,” Rolling Stone, September 12, 2013, p. 42. 39. US Department of Commerce, The Competitiveness and Innovative Capacity of the United States (Washington, DC: US Department of Commerce and National Economic Council, 2012), p. v. 40. Klaus Schwab, ed., The Global Competitiveness Report, 2013–2014 (Geneva, Switzerland: World Economic Forum, 2013), http://wef.ch/gcr13reader. 41. Oliver Cann, “Institutions and Innovation Increasingly Important for Competitiveness,” news release, World Economic Forum, September 4, 2013, p. 1, http://www.weforum .org/news/institutions-and-innovation-increasingly-important-competitiveness.

Education 42. Emi Kolawole, “U.S. Slips in World Economic Forum’s Competitiveness Rankings— Innovations,” Washington Post, September 5, 2012. 43. Daron Acemoglu and James A. Robinson, “World’s Next Technology Leader Will Be US, Not China—If America Can Shape Up,” Christian Science Monitor, April 19, 2012, http://www.csmonitor.com/Commentary/Global-Viewpoint/2012/0419/World-s-next -technology-leader-will-be-US-not-China-if-America-can-shape-up. 44. Ibid. 45. See Table 7.1. 46. National Conference of State Legislatures, “Teen Pregnancy Prevention,” http://www.ncsl .org/issues-research/health/teen-pregnancy-prevention.aspx, accessed March 25, 2014. 47. Ibid. 48. Ibid. 49. Cameron Brenchley, “High School Graduation Rate at Highest Level in Three Decades,” Homeroom blog, US Department of Education, January 23, 2013, http://www.ed .gov/blog/2013/01/high-school-graduation-rate-at-highest-level-in-three-decades/. See also Stephanie Simon, “High School Graduation Rate Up Sharply, Red Flags Abound,” Reuters, February 25, 2013, http://www.reuters.com/article/2013/02/25/us-highschool-idUSBRE 9100JY20130225. 50. Child Trends Data Bank, “High School Dropout Rates,” http://www.childtrends.org /?indiators=high-school-dropout-rates, accessed March 25, 2014. This rate includes people who may have earned their high school degree in another country but does not include those in the military (almost all of whom now have a high school degree) or those who are incarcerated (who are less likely than their cohorts to have a high school diploma). 51. C. Chapman, J. Laird, N. Ifill, and Ramani Kewal, Trends in High School Dropout and Completion Rates in the United States: 1972–2009 (NCES 2012-006), U.S. Department of Education (Washington, DC: National Center for Education Statistics, 2011), pp. 8–9. 52. Russell W. Rumberger, Dropping Out: Why Students Drop Out of High School and What Can Be Done About It (Cambridge, MA: Harvard University Press, 2011), pp. 273–274. 53. Greater inequality in per-pupil expenditures can be found between rich and poor states, rather than within states themselves, but remedying such inequality would entail greater partisan battles over which states would pay and which states would be the beneficiaries in the transference of funds from rich to poor states. 54. Kevin Weiner challenged the legal defensibility of the 100 percent proficiency requirement as an impossible goal. He also challenged the law’s position that each student’s test score must be treated by the state as if the school were 100 percent responsible for that score. 55. Laurenne Ramsdell, “School Officials Optimistic After State Receives No Child Left Behind Waiver,” Fosters.com, September 22, 2013, http://www.fosters.com/apps/pbcs.dll /article?AID=/20130922/GJNEWS_01/130929811. By September 2013, Montana and Nebraska were the only states that had not requested a waiver from the federal government. Vermont, North Dakota, and Wyoming withdrew their request for a waiver. California’s and Iowa’s requests had been rejected. States still waiting for approval included Texas and Illinois. 56. David Sirota, “New Data Shows School ‘Reformers’ Are Full of It,” Salon.com, June 3, 2013, http://www.salon.com/2013/06/03/instead_of_a_war_on_teachers_how_about _one_on_poverty. 57. Ibid.

215

216

Public Policy 58. Jim Horn, “Charter Schools Are No Better than Public Schools, and Don’t Expect Them to Change,” Common Dreams, January 31, 2013, http://www.commondreams.org /view2013/01/31-9. 59. Amy Goodman and Juan Gonzalez, “Chicago to Shutter 50 Public Schools: Is Historic Mass Closure an Experiment in Privatization?” Democracy Now, May 28, 2013, http://www.democracynow.org/2013/5/28/chicago_to_shutter_50_public_schools. 60. David Sirota, “U.S. Education: Money Remains the Deciding Factor,” December 10, 2011, OregonLive, http://www.oregonlive.com/opinion/index.ssf/2011/12/us_education _money_remains_the.html. 61. Ibid. 62. Ibid. 63. S. Aud, S. Wilkinson-Flicker, P. Kristapovich, A. Rathburn, X. Wang, and J. Zhang, The Condition of Education 2013 (NCES 2013-037), National Center for Education Statistics (Washington, DC: US Department of Education, 2013), p. iii. http://nces.ed.gov/pubs 2013/2013037.pdf. 64. Sirota, “U.S. Education.” 65. Sean F. Reardon, “The Widening Academic Achievement Gap Between the Rich and the Poor: New Evidence and Possible Explanations,” Stanford University (July 2011), pp. 1–49, http://t.www.skylinecollege.edu/sparkpoint/about/documents/reardonwhitheroppor tunity-chapter5.pdf. 66. Ibid., p. 1. 67. Ibid. 68. Arne Duncan, “Give All 4-Year-Olds a Chance,” Washington Post, April 19, 2013, p. A23 (emphasis added). 69. Ibid. 70. Joanne Barkan, “Firing Line: The Grand Coalition Against Teachers,” Dissent: A Quarterly of Politics and Culture, June 29, 2011, p. 2, http://www.dissentmagazine.org /online_articles/firing-linethe-grand-coalition-against-teachers. 71. National Research Council, “Current Test Based Incentive Programs Have Not Consistently Raised Student Achievement in U.S.; Improved Approaches Should Be Developed and Evaluated,” National Academies, May 26, 2011, http://www8.nationalacademies.org /onpinews/newsitem.aspx?RecordID=12521. 72. Bruce Jacobs, “No Teacher Left Behind,” in Endeavors (College Park, MD: University of Maryland, 2007), p. 3. 73. See, for example, John Ewing, “Leading Mathematician Debunks ‘Value-Added,’” Washington Post Blog, May 9, 2011, http://www.washingtonpost.com/blogs/answer-sheet /post/leading-mathematician-debunks-value-added/2011/05/08/AFb999UG_blog.html. 74. Peter Hart, “What No One Said About NCLB Profiteering (Except the People Who Were Saying It),” Fair Blog, April 30, 2012, http://www.fair.org/blog/2012/04/30/what-no -one-said-about-nclb-profiteering-except-the-people-who-were-saying-it/. 75. Alan Scher and Sam Burchard, “Bush Profiteers Collect Billions from No Child Left Behind,” Project Censored: The News That Didn’t Make the News, March 30, 2007, http://www.projectcensored.org/12-bush-profiteers-collect-billions-from-no-child-left -behind/. 76. Motoko Rich, “Education Overhaul Faces a Test of Partisanship,” New York Times, July 24, 2013, p. A15. For example, a poll in the summer of 2013 found that only 22 percent of US residents, less than one in four, believe increased testing has helped the performance of local public schools. Fifty-eight percent reject using student test scores to evaluate

Education teachers. See Bob Schaeffer, “FairTest Press Release: New Poll Shows Americans Fed Up with School-Test Overkill,” Fair Test: National Center for Fair and Open Testing, August 21, 2013, http://www.fairtest.org/.fairtest-press-release-new-poll-shows-americans-fe, accessed March 25, 2014. 77. Leo Casey, “The Promise of the Common Core,” Shanker Blog, Albert Shanker Institute, September 16, 2013, http://Shankerblog.org/?p=8824. 78. Ibid. 79. Willona Sloan, “Coming to Terms with Common Core Standards,” INFO Brief 16, no. 4 (December 2010), http://www.ascd.org/publications/newsletters/policy-priorities/vol 16/issue4/full/Coming-to-Terms-with-Common-Core-Standards.aspx. 80. Lawrence E. Rafferty, “Common Core Standards = No Child Left Behind on Steroids,” Jonathan Turley Blog, June 29, 2013, http://jonathanturley.org/2013/06/29/common-core -standards-no-child-left-behind-on-steroids/. 81. Diane Ravitch, “The Biggest Fallacy of the Common Core Standards,” Huffington Post Politics, August 24, 2013, http://www.huffingtonpost.com/diane-ravitch/common-core -fallacy_b_3809159.html. 82. Joseph Stiglitz, “Student Debt and the Crushing of the American Dream,” New York Times, May 12, 2013, http://opinionator.blogs.nytimes.com/2013/05/12/student-debt-and -the-crushing-of-the-american-dream/. 83. Ibid. 84. Ibid. 85. Ariel Zirulnick, “US Losing Its Competitive Edge Due to High Costs of Higher Education: OECD,” Christian Science Monitor, September 13, 2011, http://www.csmonitor.com /World/Global-News/2011/0913/US-losing-its-competitive-edge-due-to-high-costs-of -higher-education-OECD. 86. Josh Lederman and Philip Elliott, “Obama Signs Bill Lowering Student Loan Rates,” Christian Science Monitor, August 10, 2013, http://www.csmonitor.com/Business /Latest-News-Wires/2013/0810/Obama-signs-bill-lowering-student-loan-rates. 87. For example, the loan may be canceled if the borrower can show disability, financial hardship, or long-term unemployment. Payments may be deferred through other programs, if the borrower qualifies for a deferral program.

217

8 Criminal Justice: Responding to Evolving Concerns

Fear of violent crime fell decidedly at the start of the twentyfirst century, only to rise again by the end of the first decade.1 Despite data showing that the United States has experienced the longest sustained drop in crime rates since the end of World War II, senseless violence reinforced by economic pessimism have raised national anxiety. The tragic shootings at Newtown, Aurora, and Tucson renewed demands for gun control legislation.2 Leading criminologist James Alan Fox claimed, “We are indeed a safer nation than 20 years ago.”3 Fox listed reasons for the decline in rates of crime: (1) computer technology, which provides a powerful new tool for data collection and analysis, (2) diminishing crack cocaine use, (3) the “graying” of the US population, and (4) well-trained police forces led by such celebrated police officers as William J. Bratton. While chief of police in Los Angeles and commissioner in New York City and Boston, Bratton aggressively targeted petty criminal acts like turnstile jumping, shoplifting, and drinking in public. He worked with then New York City mayor Rudy Giuliani to implement the “broken windows theory” proposed by criminologists George L. Kelling and James Q. Wilson. In their Atlantic Monthly article, Kelling and Wilson described the theory: Consider a building with a few broken windows. If the windows are not repaired, the tendency is for vandals to break a few more windows. Eventually, they may even break into the building, and if it’s unoccupied, perhaps become squatters or light fires inside. Or consider a sidewalk. Some litter accumulates. Soon, more litter accumulates. Eventually, people even start leaving bags of trash from take-out restaurants there or breaking into cars.4

219

220

Public Policy

Proponents of this theory urge communities to fix problems caused by social deviance before they drain and overwhelm resources. Often controversial, the policy encourages the police to “stop and frisk” anyone suspected of carrying a gun. Critics complain that the policy contributes to racial profiling by targeting minority men and violating civil rights. Despite encouraging evidence, crime still remains a chronic social problem. New criminal activity like cybercrime, along with the need for sustained vigilance against domestic terrorism, keeps crime control on the public policy agenda. In this chapter, we explore the crime problem by asking how much crime is out there, what its causes are, and how to create policies that prevent crime, punish criminals, and protect the innocent from becoming victims.

New Fears, Changing Attitudes Despite growing urban gang action, midwestern methamphetamine labs, senseless shootings, and corporate scandal, crime control was not on the agenda during the 2012 presidential campaign. In fact, Republican nominee Mitt Romney and running mate Congressman Paul Ryan called for cuts in federal law enforcement, particularly funding for the Federal Bureau of Prisons. To save money, candidate Romney proposed privatizing prisons along with reducing federal crime-fighting grants to states and localities. Romney fully embraced the National Rifle Association’s positions on gun control: no new laws but vigorous efforts to enforce existing laws. President Barack Obama countered with protests about the large number of imprisoned African American men and the disparity in criminal sentencing. He supported an expansion of the Violence Against Women Act, increased services for juvenile delinquency prevention, and research for innovative drug treatment. Although neither candidate supported unequivocal gun control, President Obama’s earlier admonition, “I have no intention of taking away folks’ guns,” was fully tempered by the tragedy at Sandy Hook Elementary in December 2012. In an address to the nation, President Obama pledged to submit new gun control legislation to Congress and “use all of the powers of this office” to end gun violence.5 After setting up an investigative task force headed by Vice President Joe Biden, the president proposed an overhaul of the nation’s gun laws prohibiting assault weapons and highcapacity ammunition magazines and requiring background checks for gun buyers. The agenda was blocked on Capitol Hill through the auspices of the National Rifle Association. In response, the president issued twenty-three executive actions to counter gun violence. Gun control advocates described them as “baby steps.”6

Federal vs. State Crimes All federal crimes are statutory. In other words, the legislative or regulatory process or both, not the “common law” tradition, determine federal crime.7 The number of

Criminal Justice

federal laws has increased greatly since 1970. Federal crimes are under the jurisdiction of agencies such as the Federal Bureau of Investigation (FBI), Internal Revenue Service, and Drug Enforcement Agency and now include such offenses as hijacking, tax evasion, embezzlement, securities fraud, and computer crime. Federal legislative initiatives to control crime peaked in the mid-1990s during President Bill Clinton’s administration. In 1994, Congress passed the Violent Crime Control and Law Enforcement Act. The omnibus crime bill channeled $30 billion into various federal programs, including lending financial support to the earlier Brady Bill, which instituted a five-day waiting period and background checks before the purchase of a gun; a ban on assault weapons; and the Department of Justice’s Community-Oriented Policing Services (COPS) program, designed to improve relations between law enforcement and communities and to put thousands of local police officers on a street beat.8 Since the Clinton administration, US attitudes about crime have changed. With state and federal governments floundering under the high cost of incarceration, residents are beginning to question prevailing incarceration practices. The United States has almost one-fourth of the world’s prisoners, but less than 5 percent of the world’s population.9 As the US economy receded in 2007, reevaluating the costs of incarceration became urgent. The following brief review of US crime legislation and policy puts current practice into perspective. In the mid-1960s, US concern for “law and order” propelled President Lyndon B. Johnson to initiate federal legislation to combat crime. Public Law 89-197, the Law Enforcement Assistance Act, passed in 1965, set up a special office within the Department of Justice to fund local projects to experiment with new methods of crime control and law enforcement. In 1968, the federal government’s role in local jurisdiction grew again with the passage of Public Law 90-351, the Omnibus Crime Control and Safe Streets Act. This act lived up to its name by granting funds to state and local jurisdictions for recruitment and training of law enforcement personnel and crime prevention education. Eventually, the grants were phased out, though they left US residents with expectations for a larger federal role in local crime control and prevention. No longer were citizens satisfied with the FBI “Ten Most Wanted Fugitives” list as a way to combat crime and build public awareness. Federal activity renewed in the 1980s. Over the next ten years, Congress passed three comprehensive crime bills dealing with different aspects of what their constituents then perceived as a terrible crime problem. In 1984, Public Law 98473, the Comprehensive Crime Control Act, overhauled federal sentencing procedures and created a new grant administrative agency, the Office of Justice Programs. In 1990, Congress passed Public Law 101-647, the Crime Control Act, which authorized $900 million for local law enforcement assistance and included a “victim’s bill of rights.” Four years later, President Clinton added his solutions to the crime problem with passage of the omnibus bill described earlier. From then until September 11, 2001, US citizens thought about and fought crime locally and

221

222

Public Policy

asked the federal government to help pay the bill. The September 11 attacks renewed expectations about the federal government’s role in combating violent crime and, in particular, terrorism. The attacks invigorated the Department of Justice, whose authority and direction were expanded and refocused. The George W. Bush administration denounced the popular COPS program mentioned earlier and the related Edward Byrne Memorial Justice Assistance Grant program. These programs, designed to provide federal assistance and boost manpower to fight crime at the local level, were rolled into Bush’s Justice Assistance Grant (JAG) program under the Department of Justice. Members of the Bush administration argued that crime fighting was “overfederalized,” so they restricted federal funding to just those local programs designed to fight terrorism. After his election, President Obama reversed this trend by announcing $2 billion in the Recovery Act of 2009, funding allocations to the JAG program. The formula for allocating JAGs combines local population figures with violent crimes figures, adjusted for a minimum allocation, to assure that all states receive some share of federal funding.

How Much Crime? Since 1929, the FBI has published an annual report on crime titled the Uniform Crime Report (UCR). This statistical summary, compiled from data supplied by state and local agencies, presents a detailed breakdown of criminal activity in the United States. For years, the most commonly cited UCR statistic was the crime index, a highly aggregated measure of the volume and rate of reported crime, but in June 2004 the FBI decided to stop publishing the crime index because the agency had determined it was inaccurate. Instead, the FBI broke the crime statistics into two measures: total violent crime and total property crime. The FBI yearly snapshots reveal that violent crime and property crime actually have declined in the United States. “The Great American Crime Decline,” described by law professor Franklin E. Zimring, is best illustrated by examining trends in UCR data.10 The 2011 UCR announced that the estimated level of violent crime in the US declined for the fifth consecutive year.11 While over 1.3 million violent crimes occurred in 2011, this number represented a decline in all four categories of violent crime: murder, forcible rape, robbery, and aggravated assault. Aggravated assault is the most common category of violent crime (62.4 percent); murder is the least often committed (1.2 percent).12 In 2011, 43 percent of those arrested for violent crimes were under twenty-five years of age; most were men (80 percent), and more were white (69 percent) than black (28 percent). Firearms were used in 68 percent of murders, 41 percent of robberies, and 21 percent of aggravated assaults. According to the UCR, crime is highest in metropolitan areas and lowest in rural counties; it is highest in the southern United States, the nation’s most populous region, and lowest in the Midwest. Overall, violent crime was down in all city groups and across all regions from 2010 to 2011. Most violent crime occurs in the heat of July and August.13 (See Table 8.1.)

Criminal Justice

223

Table 8.1 Crime in the United States: Offense and Population Distribution by Region, 2011 (in percent)

Region United States Totala Northeast Midwest South West

Region United States Totala Northeast Midwest South West

Population

Violent Crime

Murder and Nonnegligent Manslaughter

Forcible Rape

Robbery

100.0 17.8 21.6 37.2 23.4

100.0 16.2 19.5 41.3 22.9

100.0 14.8 20.6 43.6 21.0

100.0 12.8 25.3 37.8 24.1

100.0 19.4 20.1 37.4 23.1

Aggravated Assault

Property Crime

Burglary

LarcenyTheft

Vehicle Theft

100.0 15.2 18.6 43.6 22.7

100.0 13.0 21.1 43.2 22.8

100.0 11.1 21.0 46.5 21.4

100.0 13.9 21.3 42.8 22.0

100.0 10.6 19.4 36.3 33.8

Notes: a. Because of rounding, the percentages may not add to 100.0. Although arson data are included in the trend and clearance tables, sufficient data are not available to estimate totals for this offense. Therefore, no arson data are published in this table.

Murder nationwide reached a high in 1991, with 24,703 incidents reported or 9.8 murders per 100,000 population.14 By 2011, UCR data indicated the number of criminal homicides as down to 14,612 victims, representing a 10 percent decline from 2002.15 Most murder victims, like offenders, were adult males (78 percent). Altogether, the murder rate for US metropolitan areas was 4.9 per 100,000 residents.16 Most murder victims knew or were related to their assailants, and, in fact, most murders were family affairs. Nearly one-third of the murders resulted from arguments, typically over money. Juvenile gangs, brawls involving alcohol or drugs, and sniper activity counted for about 20 percent of homicides.17 About one-fourth (26 percent) of violent crimes were robberies, with most occurring during the December holidays. Robberies differ from burglaries because they involve the use of force. The 2011 UCR data demonstrated that over $409 million was lost to robberies, and the average monetary value of property taken was about $1,153. According to UCR data, robberies declined 20 percent from 2007.18 Loss from nonviolent, property crime, which includes larceny-theft, burglary, arson, and motor vehicle theft, equaled $15.6 billion in 2011. Over $4.2 billion was estimated to have been lost to motor vehicle theft; the FBI estimated 229.6 motor vehicle thefts per 100,000 people.19

224

Public Policy

Case Study How Accurate Are the Numbers? Conventional wisdom says that no data are better than bad data. How accurate are crime statistics? The most commonly reported numbers are those collected by the FBI in its Uniform Crime Report (UCR) and the US Census Bureau for the Bureau of Justice Statistics in its National Crime Victimization Survey (NCVS). Both data collections are compiled annually. Both report on similar crimes, though the NCVS does not include arson and homicide. Both collections also suffer from errors of measurement and bias, and both underreport crime. The UCR data are based on police reports; therefore, underreporting is largely due to citizen unwillingness to call the police. Not surprisingly, much petty theft (like someone stealing a wallet) goes unreported. Most people wager the police cannot do much about the loss, so why bother? A second source of inaccuracy comes from the reporting methods used. Some police departments do a better job reporting crime than others. Perhaps their collection techniques are better. Sometimes reporting crime is in a police department’s best

interest; it reflects a job well done and might even help the department’s budget allocation. On the other hand, sometimes a police department would rather not report as much crime. Too much crime raises questions about the competence of the police force. If the FBI discovers intentional underreporting, it refuses to publish the statistics of the offending agency until the discrepancies are corrected. Further, when the UCR data are collected, the police report all crimes committed in a given locality. Consequently, big cities like New York, which host a lot of commuters and visitors, report high crime rates. Police reports also emphasize certain types of crimes and not others. Selling drugs, for example, is not included, and if several crimes are committed by a criminal at once, only the most serious is counted. Victimization studies are equally flawed. The Census Bureau randomly selects households for inclusion in the study, and it too underreports crime, but for different reasons. NCVSs count only personal and household crimes, not crimes against business. Consequently, the studies are not as sensitive to continues

As part of these UCR summary statistics, the FBI also reports clearance rates, offenses cleared by arrest or “other exceptional means.”20 The 2011 clearance rate for violent crimes was about half (48 percent), though 65 percent of murders were cleared. Typically, property crime has a lower clearance rate. In 1994, the FBI began collecting hate crime statistics. Hate crimes, or crimes motivated by prejudice directed at a person’s race, religion, ethnicity, sexual orientation, or disability, both mental and physical, can be committed against persons, property, or society in general. According to the UCR, in 2011 racial bias represented the largest proportion of hate-motivated offenses. Most hate crimes take the form of intimidation against persons and vandalism against property.

Criminal Justice

225

Case Study continued crime rates overall, nor are the rates they report as volatile as UCR statistics. On the other hand, NCVSs report up to three times the number of crime victims than police reports do. However, such a discrepancy makes some sense: if five people are robbed at gunpoint, the victim study presents a different tally than the police report, in other words, five victims to one crime. Other factors also skew the data collected in each report. Victims are likely to report some kinds of crime to the police and others, like rape (possibly by a relative), to interviewers. Over time, people also forget or grow confused about when a crime occurred. Human error tends to creep into NCVS data since these studies collect information longer after a crime than do most police reports. Further, NCVS interviews include data from the previous year. Due to all these factors, comparisons between the two sources are difficult

as UCR data report perpetrators while NCVS data report victims. So are no data better than bad data? It depends. Certainly, if crime statistics are used for political convenience, the public is not well served. But if policymakers use the data with an awareness of their inaccuracies and a sense of appropriateness to the crime issue, then they serve a valuable purpose. Slight yearly data shifts probably indicate little while large differences probably tell something. As noted by criminologist James Wilson, statistical summaries do not specify what proportion of a given population consists of criminals or the number of crimes committed per year by the average criminal. These indicators would give a more valid measure of crime in the United States. Wilson warned that the best statements about crime are those supported by as many different measures as possible.

Sources: James Q. Wilson, ed., Crime and Public Policy (San Francisco: ICS Press, 1983); US Department of Justice, Criminal Victimization in the United States 1992 (Rockville, MD: Bureau of Justice Statistics, March 1994), p. 9.

While the overall UCR data presented an encouraging summary of crime in the United States, the puzzle for analysts is finding the reason for the decline. International comparisons offer some clarification and perspective. Cross-national comparisons of crime rates indicate that “lethally violent crime is much higher in the United States than in other nations . . . [but] in contrast, the United States has lower rates of serious property crime than other similar nations.”21 Though tempting to conclude that the drop in overall crime statistics indicates progress in the “war on crime,” data alone fail to give the full picture. Much data underreport the extent of particular crimes. Since the mid-1980s, multiple factors have led to the crime rate decline. Certainly, demographic shifts associated with the population bulge of aging baby boomers combined with changing ethnic compositions have affected it. More specific factors include the high rate of incarcera-

226

Public Policy

tion, police innovation (which includes aggressive policing), changes in the drug market, overall economic conditions, and investments in social services. Looking at existing data, criminologist Elliott Currie commented, “While guarded optimism may be in order, complacency is not. And there is no guarantee that the respite that we are now enjoying will last.”22

Crime: A Definition In their book Crime and Human Nature, Harvard University scholars James Wilson and Richard Herrnstein explored the meaning of crime.23 They concluded that crime is not easily defined, measured, or categorized. For example, categories like property crime, crime against persons, white-collar crime, victimless crime, or public corruption fall short because they are not mutually exclusive. Crimes have different social costs. Most people fear property loss from street crime, yet the financial loss from white-collar crime is far greater. Obviously, some crimes are more abhorrent and more destructive to the social fabric than others. Wilson and Herrnstein used a legalistic definition of crime: “any act committed in violation of the law that prohibits it and authorizes punishment for its commission.”24 A serious crime is aggressive, violent behavior categorized as murder, rape, assault, and theft. The legal definition of crime is the least ambiguous, though not all scholars are happy with it. They complain that criminal law reflects the values of society’s most powerful. What is a crime and who is a criminal can vary over time and differ between societies. Clive Coleman and Clive Norris illustrated this point by recounting the US experience with Prohibition during the 1920s, noting that it “represented a political victory for the moral code of one segment of American society at the expense of another.”25 They emphasized that “the more complex society [is], the more likely that norms [will] come into conflict.”26 Criminal law and crime are social constructions and thus problematic. One way to gain an understanding about crime is to look at the causes of criminal behavior. This approach focuses attention on the criminal and his or her relationship with the rest of society. A second approach explores the processes and characteristics of the criminal justice system, established to deal with crime. Here, one asks how effectively the system protects the innocent, punishes offenders, and reduces the level of crime.

Causes of Crime: What Do We Know? Considering the amount of crime reported, the causes of criminal behavior are debated. Wilson and Herrnstein explained that “crime is as broad a category as disease, and perhaps as useless. To explain why one person has ever committed a crime and another has not may be as pointless as explaining why one person has

Criminal Justice

ever gotten sick and another has not.”27 But in fact, scholars who study the determinants of criminal behavior know quite a bit about its etiology or origin. This scholarly endeavor forms the field of criminology. Social scientists have learned more about why some people commit crimes than they have about how to lower the overall crime rate. Criminologists have proposed many scientific, empirically testable theories of criminal behavior, often based on multidisciplinary research. Recently, research has drawn on fields like economics and biology. The field of criminology has a long history, dating from the eighteenth-century Enlightenment period. As recounted by Coleman and Norris, early researchers opposed the unpredictable, discriminatory, inhumane and ineffective criminal justice systems that were to be found in their day, systems that often left much to the discretion of judges (including the frequent use of “mercy” and “pardons”), employing barbaric, cruel methods of punishment (and torture for extracting confessions) and seemed to any intelligent observer to be very ineffective in preventing crime.28

In the eighteenth century, Catherine the Great of Russia invited a young Italian named Cesare Beccaria to help reform Russia’s criminal laws. His treatise On Crimes and Punishment advocated criminal laws “severe enough to offset the advantage gained by the crime.”29 Facilitated by publication of national crime statistics, first in France during the early 1900s, moral statisticians looked for patterns in criminal behavior and attempted to design models comparing their work to that of the natural sciences. Later in the nineteenth century, Italian Cesare Lombroso claimed to have discovered actual physical differences in the anatomical makeup of criminals. Though thoroughly discredited, Lombroso’s work stimulated further academic and scientific study of criminal behavior.30 George Vold and Thomas Bernard, in their book Theoretical Criminology, designated three essentially different ways of thinking about crime: “Two frames of reference focus on the behavior of criminals. The first argues that behavior is freely chosen, while the second argues that it is caused by forces beyond the control of the individual. The third frame of reference views crime primarily as a function of the way criminal law is written and enforced.”31 Given these different points of departure, scholarly disagreement over the causes of crime is not surprising. Scholars who view criminal behavior as freely chosen describe people as rational and the criminal act as being like any other act—a purposeful choice with the aim to promote one’s best self-interest, much like the choices described by public choice theory. This “classical” deterrence view is highly legalistic and emphasizes ways society can maximize the cost and minimize the benefits of criminal behavior. More recent analysis of crime, like that of Nobel Prize–winning economist Gary Becker, integrates economic concepts into

227

228

Public Policy

research on criminal behavior. Becker’s concept of expected utility represents an offender’s expected reward compared to the likelihood of punishment.32 The second perspective, criminal behavior as caused, is deterministic, proposing that people behave as they have been biologically determined to behave. This view dominated the early field of criminology. Contemporary positivists argue that while social scientists will never be able to say what causes criminal behavior, research can determine what factors predispose or increase the risk for a life of crime. Deterministic theories explore the relationship between socioeconomic settings and emotional, psychological, and physical factors. Some criminologists even question the efficacy of punishment in dealing with criminal behavior. They favor psychological therapy and counseling. The last perspective, the behavior of criminal law, emerged in the 1960s when, as Vold and Bernard explained, “some criminologists [began] to address a very different question: why some individuals and behaviors are officially defined as criminal and others not.”33 These scholars ask why, given a place and time, certain people and behaviors are defined as criminal. Focusing on crime as a function of cultural context emphasizes the criminal incident rather than the offender. Thus, the field of criminology offers compelling theoretical arguments and divergent explanations. Some criminologists argue that crime relates to intelligence, hyperactivity, or chromosomal characteristics. Others assert that poverty and economic inequality lead people to criminal behavior. A traditional view, associated with sociologist Emile Durkheim (1858–1917), argues that, in the process of social change and modernization, societies became highly differentiated. A consequence of differentiation was anomie, or a breakdown in social bonds and norms. Crime is a consequence of anomic society and can be the price a society pays for modernization. Many criminologists and sociologists in the tradition of Durkheim look to society as a whole to explain criminal behavior. More recent explanations, like strain theory, offer the intuitive appeal of a causal relationship between social inequality, lack of economic opportunity, and crime.34 Some see crime as learned behavior. Others offer a Marxist or feminist interpretation. All theories of criminal behavior have been extensively criticized and are beset with a large number of theoretical and empirical problems. Many offer limited guidance to the policymaking community. In the introductory chapter to their book on crime, Wilson and Herrnstein summarized the known facts: Predatory street crimes are most commonly committed by young males. Violent crimes are more common in big cities than in small ones. High rates of criminality tend to run in families. The persons who frequently commit the most serious crimes typically begin their criminal careers at a quite young age. Persons who turn out to be

Criminal Justice criminals usually do not do very well in school. Young men who drive recklessly and have many accidents tend to be similar to those who commit crimes. Programs designed to rehabilitate high rate offenders have not been shown to have much success, and those programs that do manage to reduce criminality among certain kinds of offenders often increase it among others.35

For the policymaker, individual indicators of crime like age, gender, personality, or intelligence do not translate easily into practical policy. Even policies emphasizing the deterrence of criminogenic factors, or those factors that may lead to crime, like drugs, alcohol, and guns, are hotly debated (see later sections of this chapter).36 As a result, policy attention shifts to an area more easily identified and controlled, the criminal justice system. Here, consideration is given to the relative costs of legal protection and punishment and the efficient delivery of criminal justice services.

Characteristics of the Criminal Justice System The United States, in practice, has no single criminal justice system. What exists is a jumble of legal avenues that, when mapped out, look more like a poorly designed interstate road system than a carefully constructed legal structure. The US criminal justice system is decentralized, consisting of local, state, and federal jurisdictions, with the more local courts in theory having as much power as the courts at the national level. Again, decentralization of the courts reflects the US historical experience; when drafting the Constitution, the Founding Fathers left most criminal law to the states. They wanted criminal law to reflect community standards and enforcement to be localized. The consequence is variability in laws and consequences throughout the fifty US states, resulting in challenges to equity and justice. The Courts

Generally, state and local criminal jurisdictions follow similar organizational patterns, although they often use different names to describe similar functions. The design and size of jurisdictions vary. To fully explain all the systems of each jurisdiction would require a separate book. Nevertheless, they all share basic similarities in organization and process. Generally, at the bottom of each state system are courts of limited jurisdiction (or “special” jurisdiction), which hear civil cases and trials involving criminal misdemeanors.37 The next level of courts has general jurisdiction, in which the state prosecutes individuals accused of serious felonies and the court decides certain types of important civil cases. The appeals courts review and rule on the legality of decisions made by the lower courts. State supreme courts are the top appellate courts.

229

230

Case Study Gangs In March 2013, a twenty-one-year-old man was convicted of first-degree murder for a gang-related, retaliatory killing at an upscale shopping mall in a Baltimore suburb. One month later, prosecutors charged the members of the same gang, the “Black Guerilla Family” along with thirteen female correctional officers with running a money-laundering and drugtrafficking scheme inside a Baltimore jail. On the rise throughout the 1990s, youth violence has flattened out in recent years. Scholars argue that gang membership and ancillary youth crime correlate with rising crime rates. Hypothetically, gang membership offers a form of protection from violent crime. Sociologists point to various reasons gangs attract mostly young men: status, protection, excitement, social adjustment, and an antidote for disordered family life. Gangs range from the highly organized and centrally led to loosely run associations of kids on the street. Some gangs become “enterprises” run like a business or others are concerned with turf. Gang members coalesce around race and ethnicity. Often they represent small groups of disenchanted teens much like the illustrious “bling ring” consisting of seven teenagers who stole millions of dollars’ worth of property from Hollywood celebrities. Much activity centers on property crime, especially graffiti, but all too often gangs, drugs, and guns form a lethal combination. For example, the extremely violent gang, MS-13 or La Mara Salvatrucha, operates in forty-two states with some 10,000 members. MS-13 originated among Salvadoran immigrants engaging in drug distribution, robbery, carjacking, and vandalism. Different from the “teddy boys and the mods” of the 1960s, with their curious combination of pop culture and high art, gangs today often bear a stronger

resemblance to US gangs of the 1920s. Historically, gangs originated in the United States after the Revolutionary War. They grew during the Civil War, some in association with the “Know-Nothing” party, and bore such colorful names as the Pug Uglies, the Dead Rabbits, and the Bowery Boys. By the 1920s, they consisted mainly of Irish, Jewish, and Italian groups. In 1927, University of Chicago sociologist Frederic M. Thrasher published a groundbreaking study titled The Gang and argued that transitional neighborhoods provided breeding grounds for gang membership. From the 1960s to 1990s, the demographics changed, with African American and Hispanic gangs gaining prominence. Gangs today are more dangerous because of their access to lethal weapons. The old tactics of hit-and-run have given way to frightening “drive-by shootings.” Gang members today are both older and younger (average age of seventeen years), more likely to have prison records, and more likely to use drugs and alcohol. Significantly, a rise in female gangs has accompanied the trend in gang activity, with many female gangs acting as auxiliaries to male gangs. Categorizing gangs is troubling to sociologists who represent them by their degree of organization, from the loosely formed teenage groups “hanging out” in shopping malls, to street gangs, to semistructured criminal organizations that often feed into organized crime groups. Gangs are not isolated to the inner city, though Los Angeles’s Hispanic gangs and Chicago’s African American gangs record the highest memberships. Recent data indicate that gang formation has cascaded to the suburbs and rural areas, where members participate frequently in property crime that is often marked by gang graffiti. The most established

continues

Criminal Justice

231

Case Study continued megagangs and specialty gangs deal drugs and fight over their geographic control of territory. While African Americans, Hispanics, and Asians disproportionately join gangs, studies show that they are not predisposed to rebellious or illegal activity. Rather, groups like Chicago’s Black Gangster Disciples Nation are often carriers of community traditions and offer their members an identity they crave. Studies point to the roots of gang formation in low neighborhood integration, faulty parental supervision, lack of stable work opportunity, poverty, and, for many, the excitement and prestige of gang membership. Contemporary sociologists point to gangs as symptomatic of

problems in the wider social context. The Department of Justice funds its National Youth Gang Center to demonstrate its commitment to a community-wide approach to gang prevention and suppression. In September 2007, Senators Dianne Feinstein (D-CA) and Orrin Hatch (R-UT) cosponsored the Gang Abatement and Prevention Act to appropriate $1 billion over a fiveyear period for antigang enforcement. The law along with the FBI’s Central American Fingerprint Exploitation (CAFÉ) initiative denies gang members entry to the country, based on fingerprints collected in Central America and Mexico.

Sources: Michelle Adams, “‘The Bling Ring Movie’: Where Is the Real Life Bling Ring Today?” Policy Mic, May 29, 2013, http://www.policymic.com/articles/44817/the-bling-ring-movie-where-is-the-real -life-bling-ring-today; Ian Duncan, Kevin Rector, and Scott Calvert, “Inside a Jail Run from Within,” Baltimore Sun, April 20, 2013; Jon Meoli, “Alleged BGF Member Sentenced to Life for Towson Mall Murder,” Baltimore Sun, May 7, 2013; Jean H. Baker, Ambivalent Americans: The Know-Nothing Party in Maryland (Baltimore: Johns Hopkins University Press, 1977); and Frederic M. Thrasher, The Gang: A Study of 1313 Gangs in Chicago (Chicago: University of Chicago Press, 1927).

Organizationally, the federal court system is divided into ninety-four district courts (trial courts) and thirteen US courts of appeals circuit courts. Again, cases originate in federal district court and move upward in the appeals process to the US Supreme Court. The Supreme Court hears only those cases with far-reaching policy implications. Many people take part in the administration of justice. Key participants include police officers, prosecutors, public defenders, judges, wardens, psychiatrists, and parole officers. Often, they have competing goals. Some seek to protect citizens’ rights under the law; others see that punishment is effectively carried out. Ultimately, a struggle occurs between speed and due process of law, between protection and punishment. Those in the criminal justice system seek to investigate and arrest, prosecute, determine guilt or innocence, and punish or rehabilitate, depending on the circumstances. The process from arrest to sentencing has changed little from colonial times. A crime is investigated and an arrest is made by the police. The prosecutor

232

Public Policy

seeks an indictment and an arraignment follows. A trial consists of the admission of evidence and questioning of witnesses until a verdict is reached. If guilt is determined, a judge or jury establishes the appropriate sentencing. From there, the penal system takes over. However, most criminal cases never follow this process; rather, a plea bargain is forged. Here, a defendant pleads guilty to a certain charge and in exchange the court drops more serious charges or offers a lighter sentence. In the United States, if a defendant pleads guilty, no trial is conducted. By reducing court loads and avoiding long and costly trials, plea bargaining expedites the judicial process. Critics argue that the plea bargain works against those who insist on the constitutional right to trial by jury, but trials too can work against defendants. As noted by Marianne LeVert, “if defendants exercise this right, they risk a harsher sentence.”38 The Role of the Police

Because the police are the most visible part of the criminal justice system, much attention focuses on their effectiveness. James A. Inciardi wrote that the police represent “that ‘thin blue line’ between order and anarchy.”39 The United States has no national police force, and state and local police agencies operate autonomously. Local autonomy has its roots in historical opposition to any type of standing army in the United States. As of 2008, the FBI cataloged 14,619 police agencies, or 3.6 law enforcement officers per 1,000 inhabitants.40 The chief function of the police is keeping the peace, not enforcing the law. Police officers share a subculture not unlike the military subculture. Police departments are organized to follow a chain of command; procedure and discipline govern police behavior. As peacekeepers, the police use patrolling techniques to protect public safety and enforce the law. Many argue that the police have been restricted in their ability to exercise their investigative and arrest powers. The abilities to stop, question, detain, use force, and search have been constrained by Supreme Court decisions. Much public policy debate about the criminal justice system centers on legal decisions that critics claim have tied the hands of law enforcement agencies. During the tenure of Supreme Court Justice Earl Warren (1953–1969), a revolution occurred in procedural rights, or the rules surrounding the conducting of trials to ensure justice is consistently and fairly applied. Because the rights of the accused are the same as the rights of the innocent, constitutional protections against unjustified searches, admission of hearsay as evidence, and inadequate legal defense apply. Since the 1960s, the rights of the accused have been expanded; however, any further expansion may have been stopped by the appointment of more conservative justices to the Supreme Court during the Republican administrations starting with that of Richard Nixon.

Criminal Justice

The exclusionary rule. One such expansion involved the exclusionary rule,

which prohibits illegally obtained evidence from being introduced in a court of law. Despite the arguments by critics that the rule protects only the guilty, the Supreme Court fully extended the principle to the state justice systems in Mapp v. Ohio (1961).41 Mapp produced immediate reactions from enraged police departments throughout the country, which felt the ruling seriously diminished their legal investigative powers. Conservatives feared that criminals would now walk away due to mere legal technicalities. The exclusionary rule was eventually set back by the good faith exception, enunciated in United States v. Leon (1984).42 Here, the Supreme Court ruled that, even if a search was determined to have been technically illegal, if the police acted in good faith, the evidence obtained could be introduced in court. In 2008, the US Supreme Court determined that evidence acquired in violation of the “knock and announce” requirement was admissible. In Hudson v. Michigan, the police violated a common law precedent requiring the police to knock and announce their presence, thus providing residents with sufficient time to open the door.43 The Supreme Court ruled that if the police thought that occupants were destroying evidence, they could enter without a warrant. On the other hand, in United States v. Cotterman, the court ruled that border police could not search a laptop computer without reason for suspicion, restricting the “border search exception” that allows search and seizure at international borders without warrant or probable cause.44 The USA Patriot Act signed into law in October 2001 changed Fourth Amendment protections considerably. Federal law enforcement now can track Internet communications to intercept the content of electronic communications. “Sneak and peak” warrants allow searches of a person’s home or a business to seize property without disclosure for months. These enlarged practices conducted to combat terrorism are done in the name of national security. Later in this chapter and the book, a fuller discussion of “cybersecurity” is presented. Custodial interrogation. The Supreme Court extended the right to counsel at state expense to all felony cases with Gideon v. Wainwright (1963).45 Shortly afterward, the Court moved even further to protect defendants by addressing police conduct during arrest and interrogation in Escobedo v. Illinois (1964), when it decided suspects have the right to counsel back to the point of arrest.46 Then two years later, in Miranda v. Arizona (1966), it required police to inform every suspect of their constitutional rights upon arrest.47 These cases represented the view that convictions often resulted from confessions obtained through inappropriate interrogations by the police, in other words, from defendants who were unaware of their constitutional rights with regard to criminal matters. Since most convictions result from confessions, once again bitter reactions followed. New York City’s police commissioner argued that “if suspects are told of their rights they will not confess.”48

233

234

Public Policy

Many argue that the Miranda decision has reduced the effectiveness of confessions as a crime-fighting tool and symbolizes an obsessive concern for the rights of the accused. However, the original strength of the Miranda rule has been diluted through decisions reached in cases beginning with the 1970 Burger Court, so named for Chief Justice Warren Burger.49 Chief Justice Burger, a Nixon appointee, espoused a “law and order” position. More recently, concern with custodial rights has centered on the use of plea bargaining, as discussed earlier. Today, the number of defendants deciding to “cop a plea” far exceeds those opting for jury trials. Some critics maintain that the practice subverts justice by violating constitutional protection against self-incrimination and the guarantee of a fair jury trial, but its widespread use also lessens pressure on the criminal justice system. Often manipulated, blamed, or even hated, police departments are caught in the crossfire of criminal justice policy debates. The police have difficulty balancing the demands for more aggressive anticrime measures, which require more expenditures and greater intrusiveness on people’s lives, with demands that they adhere to constitutional protections that ensure proper investigative and arrest procedures. Increasingly, the police are forced to use discretion, or selective enforcement of the law, in doing their job.

Police Theory The first large, organized police force was set up in London in 1830; New York and other large cities followed.50 Before that, policing was a voluntary, citizen-based effort. To these early police departments, a policy of high visibility and low response time was very effective. According to criminologist Lawrence Sherman, “there is substantial evidence that serious violent crime and public disorder declined in response to the ‘invention’ of visible police patrols.”51 Over the past twenty-five years, research has shown that police visibility really does not matter anymore. An influential experiment was done by the Kansas City, Missouri, police department that compared crime rates in three groups of patrol beats. One group was given two to three times as much coverage as the others, another group no coverage, and a third group normal police coverage. Results showed no difference in crime across the groups.52 Researchers speculate that changes in population density resulting from the growth of suburbs in the 1950s and 1960s have reduced the effectiveness and practicality of police visibility and quick response time. As Carl Klockers explained, “it makes about as much sense to have police patrol routinely in cars to fight crime as it does to have firemen patrol routinely in fire trucks to fight fire.”53 However, police visibility is not totally without value. It does make a difference if it is concentrated and directed at “hot spots”—areas and times of high crime. For example, police crackdowns—sudden and massive increases in police presence or enforcement activity—are very effective, especially if they are short in duration and unpredictable.54

Criminal Justice

Today, the police are adopting strategies that emphasize “security guard” and “public health” activity. Community-based policing treats a neighborhood the same way a security guard treats a client’s property, by looking for risk factors for crime. Security guards, however, protect private property while the police protect public space. The police cannot use trespassing laws to protect public space. They rely on programs that address risk factors such as traffic stops to control handguns, repeat offender programs to track parolees, and curfews and truancy regulations to monitor juveniles. Using public health strategies, police departments consider long-term trends and “situational factors” that contribute to crime. They use this analysis, for example, to make recommendations to communities for siting automatic teller machines or determining closing hours for businesses. Both of these approaches represent a new philosophy of policing, one that emphasizes prevention, problem solving, and peacekeeping alongside traditional law enforcement. Gradually, police strategy is moving toward a balance between the taxpayer demand for “fair share” approaches to policing and focused, risk-reduction strategies.

Prisons: Perspectives on Punishment and Correction By the 1960s, not only had the orientation of the courts changed, but so had public attitudes toward crime. The decade was in many ways a turning point in criminal justice policy. Citizens had come to fear crime as never before, in part due to increasing street crime, drug use, and civil rights protests. Consequently, President Lyndon B. Johnson declared a “war on crime” and established a presidential commission to study the psychology and sociology of crime in the United States and appropriate policy responses to it. Commission recommendations led to passage of the Omnibus Crime Control and Safe Streets Act in 1968.55 This act was viewed by some as a way to offset criticism that the country had gone soft on crime. The emphasis on law and order continued through the 1970s. President Richard Nixon supported increased funding to local governments via the Law Enforcement Assistance Administration for researching and conducting programs directed at crime abatement.56 By the 1980s, both Presidents Ronald Reagan and George H. W. Bush fought hard for strict law enforcement policies along with protection for victims’ rights and stricter drug laws. However, the emphasis has not been just at the federal level. A landmark study reported that by the 1990s criminal justice was “the fastest growing area of state and local spending, [and] expenditures grew 232% between 1970 and 1990. In comparison, public expenditures on hospitals and health care increased 71%; public welfare, 79%; and education, 32%.”57 Associate Justice Anthony M. Kennedy reported in a 2003 speech to the American Bar Association that “the cost of housing, feeding and caring for the inmate population in the United States is over 40 billion dollars per year.”58 As the first decade of the twenty-first century ended, the number of prisoners in state and federal correctional facilities had begun to decline from its peak in the

235

236

Public Policy

1970s. By 2011, 492 per 100,000 population were incarcerated, down almost 2 percent from 2010.59 Though modest, the decline reflects underlying conditions related to cost, demographics, and changing attitudes toward incarceration. A Congressional Research Service study noted that “taxpayers spent about $68.7 billion in 2008 to feed, clothe and provide medical care to prisoners in county jails, state and federal prisons and facilities housing legal and illegal aliens facing possible deportation.”60 The economic recession beginning in late 2007 put additional pressure on states to reduce costs. The prison population has changed too. For example, the number of federal prisoners over fifty-five years old nearly doubled from 2000 to 2009.61 Health care costs to care for these prisoners totaled $9.9 billion in 2009.62 While the population of prisoners is generally in worse health than the overall population, these costs should decline. Beginning in 2014 inmates released from prison will be eligible for Medicaid through the Affordable Care Act.63 In 2011, almost half of the inmates in federal correctional facilities were incarcerated for drug offenses.64 A Bureau of Justice Statistics study reported that “among prisoners ages 18 to 19, black males were imprisoned at more than 9 times the rate of white males.”65 The same study reported that one of the fastest-growing segments of the federal prison population were those people imprisoned for immigration offenses. Prison crowding, rising health care expenses, and recidivism renewed the debate over incarceration policy. Federal studies were launched. As one consequence, the federal government began to turn to the private sector to house some of its prison population. The “Second Chance Act” (Public Law 110-199) to combat recidivism became law in 2008. The US Supreme Court upheld a lower-court decision requiring the State of California to reduce its overcrowded prison population. California incarcerates more people than any other state but Texas.66 The California Public Safety Realignment directed the placement of nonviolent, nonsexual offenders under county jurisdiction and in local jail facilities.67 To further counteract soaring prison populations, some states began experimenting with “reentry” programs designed to integrate prisoners back into society. The Justice Department established the National Reentry Resource Center to highlight successful approaches to reentry after prison. In 1984, Congress designated the US Sentencing Commission (USSC) to launch federal sentencing guidelines. The USSC’s purpose was to make sentences more uniform by providing judges a “grid with the offense for which the defendant has been convicted on one axis and the offender’s history and other details on the other. The grid gives the judges a range of possible sentences and the system instructs them [judges] to go above that range if they make certain factual findings.”68 In January 2005, the US Supreme Court decided that federal sentencing guidelines were unconstitutional because they violated a defendant’s Sixth Amendment right to trial by jury. Essentially, sentencing guidelines empowered judges to

Criminal Justice

increase sentences beyond those set by a jury. The Supreme Court justices opposing the decision argued that Congress’s original intent when passing the Sentencing Reform Act in 1984 was to ensure that similar sentences were given to those committing similar crimes. Now, they argued, allowing juries to set the sentences shifted “too much power to prosecutors.”69 Ironically, many judges also have complained about the USSC guidelines, particularly when they want to show more leniency. As a result of the Supreme Court decision, the USSC continues to exist, but its guidelines have become advisory.

The Philosophy of Reform Significantly, no explicit philosophy serves as an underlying rationale for US criminal justice policy. Traditionally, such policy has been based on one of four competing philosophical attitudes about punishment: (1) retribution, (2) incapacitation, (3) rehabilitation, and (4) deterrence. Which particular attitude prevails depends on shifting national values and growing or waning fears about crime. Retribution is the age-old philosophy of “an eye for an eye.” Often referred to as a policy of “just deserts,” it emphasizes punitive sanctions: criminals must pay their debts to society through punishment that “fits” the crime. Somewhat related is the philosophy of incapacitation, which postulates that, through restraint or incapacitation, criminals are removed from society so that they can no longer endanger others. Incapacitation emphasizes citizen protection and crime prevention. Rehabilitation involves reintegrating criminals into society through corrections programs and services. More humanitarian in their stance, proponents of this philosophy look to social causes to explain crime. As noted earlier, a focus on rehabilitation dominated most twentieth-century thinking and policymaking about crime. In recent years deterrence philosophy has come to the fore. Here, some argue that the effective use of sentencing will function as an example to deter would-be offenders (general deterrence) or to convince criminals not to commit another crime (specific deterrence). Often the appeal of a particular philosophy is tied to assumptions about human nature. In an effort to sort through competing policy approaches, David Gordon has laid out the logical flow of conventional criminal justice policy.70 He noted that liberal and conservative philosophies about crime correspond to liberal and conservative positions on other social issues. Both liberals and conservatives share the assumption that criminal behavior is irrational. To a conservative, the problem and the solution are for the most part straightforward. Social order, as reflected in the law, is rational. Because criminal behavior is irrational, it must be met with a response that protects public safety. Policies to combat crime must emphasize forces that deter crime. This outlook translates into more police, more equipment, and more prisons. On the other hand, although liberals agree that criminal behav-

237

238

Public Policy

ior is irrational, they also see imperfections in the social order. Therefore, because the system is imperfect, they note, some people are more likely to be driven toward a life of crime. As Gordon stated, “criminality should be regarded as irrationality, but we should nonetheless avoid blaming criminals for irrational acts.”71 Liberals postulate relationships between poverty and racism and crime. Consequently, their answer to crime is found in more research, more technology, and more professional counseling for criminals. Liberals argue that societies will never rid themselves of crime until the root causes are discovered and eliminated. In sum, the conservative emphasis on law and order and protection leads to policies promoting incapacitation and deterrence. The liberal emphasis on justice and equality has a stronger connection to rehabilitative techniques. Sometimes laws contradict ideological integrity. For example, all states enacted a version of California’s Megan’s Law, which requires convicted sex offenders to register with their local police after their release from prison and allows officials to publicize names of some offenders. Despite a string of court challenges that argued the registration represented an additional punishment, appeals courts have determined that the law is an administrative action and not a criminal penalty. Some, including members of the various state civil liberties unions, oppose the registration, arguing that the decision about how to characterize an offender (one of three groups ranging from low to high risk, with all information on high-risk offenders, including name, address, physical description, and detailed criminal history, being published) can lead to prejudice and mistakes. Liberals and conservatives alike are torn between offender and victim rights. More recent economic analysis of crime began to question traditional liberal and conservative assumptions in another way.72 These scholars challenge the assumption that criminal behavior is irrational. Building on nineteenth-century utilitarian thinking, they argue that criminal behavior is a rational choice, as follows: “A person commits an offense if the expected utility to him exceeds the utility he could not get by using his time and other resources at other activities. Some persons become ‘criminals,’ therefore, not because their basic motivation differs from that of other persons, but because their benefits and costs differ.”73 The rational choice model of crime claims that criminals rationally calculate the cost-benefit ratio of an act. In so doing, they consider the likelihood of being caught, the probability of punishment, and the length and nature of their possible punishment. Solutions to crime from this perspective can be found in an analysis of why criminals make the choices they do and in the development of cost- or punishmentoptimizing policies to deter people from making that choice. Public policy should thus aim at raising the cost of crime disproportionately to its potential benefits. Still, notions of deterrence pervade current policy for combating crime as evidenced by the continued enthusiasm for definite and determinate sentencing policies. A definite sentence sets a fixed period of confinement that allows no reduc-

Criminal Justice

tion by parole while a determinate sentence is a fixed confinement, set by the legislature, with parole eligibility. The more customary indeterminate sentence offers more court discretion and is based on a correctional (not deterrent) model of punishment. Recent truth-in-sentencing rules mandate that a prisoner must serve at least 85 percent of his or her sentence. As noted above, all of these practices have led to large-scale crowding and considerable expense.

The Implications of Punishment and Reform Many find fault with the increased emphasis on deterrence and especially question the assumption of criminal rationality. They argue that, even if individuals know that the risk of being caught for committing a crime is low, most would not commit a crime, particularly a violent crime. Further, critics point out that the assumption that criminals understand and weigh the possible costs and punishments for their criminal acts lacks empirical support. Analysts argue that keeping people in line takes more than the threat of punishment.74 Those who defend deterrence argue that, while particular deterrence, or the effect of deterrence on criminals, may be hard to prove, incarceration and other forms of correction are likely to have a general deterrence effect. Analysts claim that the average citizen is less likely to commit a criminal act because of the “demonstration effect” of punishment. Some assert a relationship between the certainty, severity, and swiftness of punishment and crime levels.75 This proposition helped build arguments against the more traditional rehabilitative policies. Research has found that traditional rehabilitation has achieved only limited success. Alfred Blumstein explained that, by the mid1970s, studies showed that rehabilitation programs had a “null effect.”76 In other words, corrections programs broke even on reducing recidivism, or recurring criminal behavior, which seems more closely associated with personal characteristics of the criminal and the outside environment to which the prisoner returns upon release. Tougher sentencing has not had the desired deterrent effect either. Data since 1975 show that longer sentences have not reduced the level of crime. As noted in a National Research Council study, “if tripling the average length of incarceration per crime had a strong deterrent effect, then violent crime rates should have declined in the absence of other relevant changes. While rates declined during the early 1980s, they generally rose after 1985, suggesting that changes in other factors . . . may have been causing an increase in potential [violent] crimes.”77 Princeton social psychologist John M. Darley more recently concluded that “increases in sentences have rarely, if ever, produced the desired reduction in crime rates.”78 Some even argue that longer sentences may have aggravated the crime problem. A number of experts fear that jailhouses and prisons have become “schools for crime.” Blumstein pointed out how some critics argue that “prison is harmful because it socializes prisoners, especially younger ones, into a hardened criminal

239

240

Public Policy

culture.”79 In 2005, the Supreme Court banned the death penalty for offenders under age eighteen, noting their immature and impressionable nature. More recently the Supreme Court declared mandatory life sentences for juveniles unconstitutional. Despite limits on sentences, juveniles are often housed with hardened criminals in adult facilities. Critics claim this practice contributes to reoffense, physical and sexual victimization, and increased suicide rates. How society finds a suitable mix of retribution, incapacitation, rehabilitation, and deterrence to fight crime is a practical issue, but one that also has important moral dimensions. Blecker made the following trenchant critique: “What actually happens to prisoners—their daily pain and suffering inside prison—is the only true measure of whether the traditional concepts have meaning, the traditional goals are fulfilled, the traditional definitions apply.”80 Equally important are the ethical questions associated with incarceration rates that disproportionately represent ethnic and minority populations. For example, as a result of highly publicized crack cocaine use in the 1980s, two federal laws were passed that resulted in more serious consequences for crack users than for users of regular powder cocaine. Crack is cheaper and sold in the streets and is thus more likely to be found among innercity residents. That the increased incarceration of nonviolent drug offenders, especially for crack use, involves low-income minorities is no coincidence.

Ingredients of Violence: The War on Drugs Crime abatement links with policies aimed at lowering drug and gun use, along with policies designed to lift people out of poverty. The relationship between these factors and crime is controversial. Prudent analysis shows that the connection between drugs, guns, poverty, and crime is not obviously direct or causal. The shattering effects of drug dependency led citizens to endorse draconian incarceration policies directed at eliminating illegal drug use. Beginning with the Nixon administration, drug and crime policies were connected. US residents supported the “war on drugs” and construed any efforts to decriminalize drug use as morally bankrupt. Today, the country has entered a “postwar” period with respect to drug policy.81 Even President Obama denounced the “war on drugs” as an utter failure during his presidential campaign.82 The links between drugs and crime are just too complex, and the financial and social costs of drug-related incarceration policies are very high, while the benefits are unclear. Typically, supply and demand considerations govern drug policies. Reducing drug supplies through interdiction and punishment of drug traffickers, while reducing demand through education, rehabilitation, and proportionate sentencing of drug users, form the basis of the government’s current antidrug strategy. Historically, drug abatement relied heavily on the federal criminal justice system, in particular the Department of Justice’s Drug Enforcement Agency. Today, success in combating drugs is no longer assured by the number of arrests or prisons built.

Criminal Justice

Illegal drugs include a wide range of psychoactive products such as opiates, cocaine (and its derivative crack), amphetamines and methamphetamines, and hallucinogens. Medical research reveals that the behavioral response to these various drugs differs significantly from one person to the next, and from one drug to another. Reactions to drugs are highly individualistic and depend on factors such as how much of a drug is taken and how often. Setting up good scientific research on drug use and behavior is difficult. Scientists do know that different drugs elicit different reactions.83 For example, heroine and opiates tend to inhibit behavior, though what happens during periods of withdrawal is not at all clear. The chronic use of these drugs may affect the central nervous system and lead to aberrant social behavior. Drugs like cocaine, LSD, PCP, and amphetamines like methamphetamine (meth) produce effects not unlike alcohol. In small doses, individuals tend to act out in a disruptive fashion while higher doses lead to more disorganized, clumsy behavior that may have an inhibiting effect on social interaction. Crack cocaine may lead to a psychotic state, though no direct relationship has been established to demonstrate that crack leads to psychosis. Essentially, the analysis of individual drug use and crime levels shows no consistent relationship. In an early study, James Inciardi noted that “New York, with the highest cocaine prevalence of the five cities [Detroit, Los Angeles, New York, Miami, and Washington, DC], and Los Angeles, with the second lowest, have the lowest homicide rates. The New York, Miami, and DC data resemble, if anything, an inverse relationship between homicide rates and arrestees’ cocaine use.”84 Studies show both intrinsic and extrinsic risk factors for drug use. Life events, such as domestic violence, low educational expectations, and peer group pressure, combined with individual impulsivity and disinhibition, facilitate drug addiction.85 But not all drug users are criminals and vice versa. Three hypotheses compete to explain the relationship between drugs and crime: (1) drug use and crime share a common cause, (2) drug use causes criminal behavior, often at first by the need to finance a drug habit, and (3) deviance leads to drug use, often exacerbated by peer relationships.86 While the physiological connection between drugs and crime is not verifiable, economic arguments are persuasive. Do drug addicts steal or kill to feed a drug habit? Again, good data to confirm this proposition are hard to come by. One study found the empirical support for economic violence to be very inconclusive. P. J. Goldstein, the primary author of a study of the New York Police Department, concluded that drug-related violence should be categorized as systemic violence rather than just economic violence.87 That is, it can be understood as the result of factors concerned with the overall drug “marketplace.” Current public policy aims at minimizing the supply of drugs so an artificial drug scarcity follows, which drives up drug prices. Dealers capture these excess profits, and drug users are forced to find ways to pay the contrived high prices. Among the reactions to this systemic condition is violence resulting from territo-

241

242

Public Policy

rial disputes, gang warfare, battles with police and informers, the creation of black markets, and the lure of corruption. Prostitution increases, and drug dealers enter the schoolyards. In the case of meth, small toxic, mom-and-pop labs compete with super meth labs, often creating serious environmental cleanup costs. A logical extension of this discussion is the iron law of prohibition. If all drugs are prohibited, dealers have a greater incentive to traffic in the more profitable and more dangerous drugs. In other words, if the punishment for dealing marijuana is the same as that for dealing cocaine, then logically, dealing cocaine is preferable because it is more profitable.88 Analysts point to the rising use of expensive “designer drugs” as an indication of this trend. One public policy direction consistent with this reasoning is drug decriminalization or eliminating drug laws. Not surprisingly, some elected officials have concluded that, given the costs of combating drug use, decriminalizing them makes the most sense. Proponents of this position argue that studies fail to confirm that drug use causes crime. Coincidentally, criminals may just use drugs. Some argue that drug programs infringe on civil liberties. Decriminalization has only a small following because most US voters simply will not accept the risk. Estimates indicate that as much as 8.7 percent of the US population uses or abuses drugs, and US voters fear that legalizing them could lead to even greater numbers.89 However, support for legalizing marijuana is rising. The most commonly used illicit drug, marijuana or cannabis, has been decriminalized or legalized in sixteen states. Nineteen states allow medical use of marijuana. A growing number of police officers support loosening the nation’s “pot” policy, citing public safety. As Stephen Dowing, Los Angeles’s former deputy chief of police, argued, “when we ended the prohibition of alcohol, Al Capone was out of work the next day.”90 The Obama administration drug czar, ex-Seattle police chief Gil Kerlikowske, no longer uses terms like war when discussing the US drug problem. In an interview, he emphasized the public health aspects of drug use as a more viable and appropriate course to pursue.91 This approach stresses education and rehabilitation rather than interdiction and prosecution.

Ingredients of Violence: Gun Control Like drugs, guns represent something tangible that policymakers can control in the fight against crime. Policymakers point to the experience of other countries, like the United Kingdom, which have tough gun control policies and far lower crime rates. However, the relationship between guns and crime is complex. While analysts concede that tough gun laws could mitigate crime, they argue that those laws would not work unless all states agreed to the same standards. Gun control policies affecting the availability, use, distribution, and deadliness of guns are already in place in the United States. Legislation dating from the 1930s

Criminal Justice

regulated the use of machine guns and required gun sellers to be licensed. In 1968, Congress passed the Gun Control Act in reaction to public outcries over the assassinations of Senator Robert Kennedy and Reverend Martin Luther King Jr.92 The act emphasized restrictions on the availability and distribution of guns. It banned mail-order sales of guns and outlawed sales to convicted felons, fugitives, and individuals with certain mental illnesses. It restricted private ownership of automatic and military weapons. The law required that gun dealers be licensed by the Bureau of Alcohol, Tobacco, Firearms, and Explosives, and that the serial numbers on all guns sold by licensed dealers be recorded. Finally, it required that individuals buying guns from licensed dealers show proof of identification and residency and certify their eligibility to own guns. In 1986, Congress set mandatory penalties for those convicted of using guns in a federal crime and prohibited the use of bullets that could penetrate bulletproof clothing: “cop-killer” bullets. The import and manufacture of semiautomatic assault weapons was banned in 1990. Despite this effort to control the distribution and availability of guns, gun ownership today is widespread. Estimates of the number of privately owned firearms in the United States run between 262 and 310 million or 101 firearms per 100 people.93 The General Social Survey conducted by the National Opinion Research Council at the University of Chicago found that 32 percent of households owned guns in 2010.94 The United States has the highest per-capita gun ownership in the world. Most are used for hunting, sport, or self-protection. About one-third of privately owned guns are easily concealed handguns, which are used disproportionately in homicides.95 Gun deaths by homicide, suicide, or accident equaled 31,328 in 2010.96 The Atlanta-based Centers for Disease Control and Prevention predicted that shooting deaths in 2015 will likely rise to 33,000, while automobile accident deaths will decline to 32,000.97 These statistics underpin a ground swell of support for more effective gun control, particularly since the 2012 mass shooting at Sandy Hook Elementary School in Connecticut. Many states tightened their gun ordinances by insisting on waiting periods before purchase, licensing of purchasers, and laws against carrying concealed weapons. But these stricter requirements were often undercut by the less demanding regulations of neighboring states. Congress passed the popular Brady Bill, named after presidential press secretary James Brady, in 1993. Brady was seriously wounded in the 1981 assassination attempt on President Reagan. The Brady Bill required a background check and a five-day “cooling off” period prior to purchasing a gun. Despite its popularity, the Brady Bill initiatives have been rolled back. The five-day waiting period and required background checks were found unconstitutional when the US Supreme Court found in Mack and Printz v. United States (1997) that they infringed on states’ rights.98 The Brady Bill imposed a requirement that local chief law enforcement officers conduct background checks on prospective gun buyers. This was an

243

244

Case Study The Enduring Debate on Capital Punishment In March 2009, Maryland governor Martin O’Malley agreed to sign legislation sent from the state General Assembly severely restricting the death penalty. Governor O’Malley announced that state money spent on death penalty prosecutions ($3 million versus $1.1. million on non–death penalty prosecutions) could better be used on crime prevention. The new law—a compromise—permits the death penalty only with corroborating DNA evidence and a videotape of the crime or confession. Support for the death penalty ebbs and flows because it raises problems of proportionality of punishment, consistency of state statutes, and the vagaries of sentencing. When the Bill of Rights was added to the Constitution, few intended the Eighth Amendment’s “cruel and unusual punishment” to preclude capital punishment. The concern was to ensure that punishment be proportional to the offense. Torturous acts of punishment, like burning at the stake, were outlawed; however, the use of capital punishment continued historically. It peaked in the 1930s and began to decline precipitously in the 1960s. Critics denounced the variability in state statutes and pointed out that the poor, blacks, and underrepresented groups were more likely to be executed. By the 1960s, the National Association for the Advancement of Colored People and the American Civil Liberties Union had mounted a campaign against the use of capital punishment, making the issue one of public policy debate. Beyond the question of arbitrary use, others raised the larger question of “evolving standards of decency.” They argued that, though our colonial ancestors found no moral distaste in imposing the death penalty, perhaps contemporary standards of decency had changed. These two concerns, combined with growing worry that juries

lacked sufficient directions in imposing the death penalty, led to a virtual moratorium on its use by the late 1960s. Perhaps inevitably, the question came before the Supreme Court. The first challenge to the death penalty addressed questions like the legality of “death-qualified juries,” that is, jurists selected for their willingness to impose the death penalty. The Court ruled such juries unconstitutional. The Court also invalidated the death penalty as mandated under the Federal Kidnapping Act. The major challenge to the death penalty occurred in Furman v. Georgia (1972). The Supreme Court temporarily struck down the death penalty because of the “arbitrary, capricious, and racist manner” in which it had been applied. Essentially, the Court reacted to how the death penalty had been used, not to the death penalty per se. Though the decision was complex, it did leave two legal avenues open to the states. They could pass laws that established a bifurcated procedure for the death penalty. Here, defendants would face a trial to establish culpability. If found guilty, then a second proceeding would follow to establish grounds for the death penalty. The other legal avenue available to states was to make the death penalty mandatory for certain crimes. The Supreme Court ruled on the legality of the two-step procedure in Gregg v. Georgia (1976). In this case, the Court ruled that the death penalty for murder did not necessarily constitute cruel and unusual punishment. Further, it declared the bifurcated system constitutional. However, the Court ruled in Woodson v. North Carolina (1976) that the death penalty may not be made mandatory. Despite the fact that the Gregg case upheld the constitutionality of the death penalty, a series of rulings has eroded the jury

continues

Criminal Justice

245

Case Study continued discretion in applying the statutory guidelines. In addition to these fundamental legal questions, other objections have been voiced regarding the cost and effectiveness of the death penalty. While some are persuaded that it is a cost-effective form of punishment, others point out that, given the need to guarantee procedural safeguards, its costs are much higher than are those of other forms of punishment. In other words, the studies show that the deterrent effect of the death penalty is far from proven. Comparisons show few differences in crime rates for those states with the death penalty and those without it. Furthermore, in states with the death penalty, comparisons of the crime rate before and after an execution show no differences. The most compelling arguments against the death penalty result from wrongful convictions. DNA analysis revolutionized criminal labora-

tories beginning in the late 1980s. Because of DNA findings, exonerated convicts have walked off death row, creating a stirring indictment of the prosecutorial system. DNA results, though expensive, present a staggering blow to death penalty arguments. Many conclude, however, that the death penalty is popularly supported by many in the United States and politically useful. On the other hand, other elected officials—among them the former governor of New York Mario Cuomo—have argued forcefully for life in prison without parole as a preferable sentence. As noted by Cuomo in a New York Times editorial, “that alternative is just as permanent, at least as great a deterrent and—for those who are so inclined—far less expensive than the exhaustive legal appeals required in capital cases.”

Sources: Mario M. Cuomo, “New York State Shouldn’t Kill People,” New York Times, June 17, 1989, p. 23; Donald D. Hook and Lothar Kahn, Death in the Balance: The Debate over Capital Punishment (Lexington, MA: D. C. Heath, 1989); Bonnie Szumski, Lynn Hall, and Susan Bursell, eds., The Death Penalty: Opposing Viewpoints (St. Paul, MN: Greenhaven, 1986).

interim requirement pending the US Attorney General’s establishment of a federal background check system. Local sheriffs, Mack and Printz, from Montana and Arizona respectively, challenged the constitutionality of the interim background check requirement, and the US Supreme Court decided in their favor. Today, a national computer system (the National Instant Criminal Background Check System) provides background checks, a requirement for all licensed gun dealers. A ban on assault weapons expired in 2004, despite considerable political pressure to extend its duration. After the December 2012 shootings at Sandy Hook Elementary School in Newtown, Connecticut, President Obama stepped up his demand for banning assault weapons. Initially, public outrage provided momentum for new gun control legislation, but as time passed, momentum declined and public furor waned. In January 2013, Senator Dianne Feinstein (D-CA) introduced legislation to renew the

246

Public Policy

assault weapon ban and restrict the sale of high-capacity gun magazines. The Senate defeated her legislation by a sixty-to-forty vote where fifteen Democrats united with all but one Republican senator.99 Later, Senators Joe Manchin III (D-WV) and Patrick Toomey (R-PA) failed to achieve the sixty-vote threshold needed to expand the background checks requirement to include background checks for online and gun show gun purchases.100 New York City mayor Michael Bloomberg and Boston mayor Thomas Menino founded Mayors Against Illegal Guns (MAIG) in 2006.101 MAIG now represents a coalition of 900 mayors who ask for commonsense reforms to control gun violence. A priority they have set is repeal of the Tiahrt Amendment named for former representative Todd Tiahrt (R-KS).102 Passed in 2003, the Tiahrt Amendment restricts the Bureau of Alcohol, Tobacco, Firearms, and Explosives from releasing information about firearms to any law enforcement agency beyond those connected with the specific crime. Although the Tiahrt Amendment protects the privacy of gun owners, it prohibits state and local police agencies from tracing gun ownership. Mayor Bloomberg’s mission rallied gun control opposition. Gun enthusiasts complain that legislation like the Brady Bill misses the point. Their common refrain, “Guns don’t kill people, people kill people,” reflects their belief that gun control will not solve the crime problem. Further, they argue that gun control violates individual rights. Supported by the aggressive lobbying of the National Rifle Association, gun control opponents challenge any attempt to curtail their right to own and use weapons. They base their opposition on the right to bear arms as protected by the Constitution’s Second Amendment and on what they perceive as a commonsense judgment that ownership of guns is uncontrollable. Opponents point to studies that show no difference in crime patterns between jurisdictions with strict gun laws and those without.103 Despite this opposition, US public opinion vacillates between insistence for stronger gun laws and the status quo. Gun control is an easily charged, emotional issue. Scholars point out that gun use tends to be an instrumental act much more than an intentional act. They point out that firearms are rarely used by serial killers. Tragically, gun availability has changed victimization patterns. Empirical evidence supports the conclusion that while guns do not increase the overall levels of crime, they seem to increase the seriousness of criminal attacks. One study concluded: Where guns are available, commercial targets are robbed more than individual citizens, and young men more frequently than elderly women. Similarly, in domestic assaults husbands are more frequently the victims. Thus the most important effects of guns on crime are that they increase the seriousness of criminal attacks and affect the distribution of victimization; they do not seem to markedly increase the overall levels of criminal attack.104

Criminal Justice

Ingredients of Violence: Poverty and Crime Does poverty cause crime? The connection between these two societal illnesses is far from simple, yet many propose that the antidote to crime is the elimination of poverty. Unfortunately, what research tells us about the relationship between poverty and crime is inconclusive and sometimes misleading. Much of the research about crime and poverty takes, as its starting point, assumptions about criminal behavior. In this model, individuals choose crime over employment when crime seems a more expedient course of action, particularly if the risk of being caught is low and the utility (money) to be gained is high. Consequently, then, the appropriate reaction to this rational choice is to increase the deterrent (punishment) for prospective criminals. A further implication is that poor people are more likely to make this rational calculus than are members of other segments of society. They have less to lose than those who have sufficient income sources. Empirical research advanced to confirm this rationale is common but methodologically weak. Many studies use unemployment statistics to measure poverty, but these have proven to be very unrefined measures, neither reliable nor valid. Timeseries studies comparing crime rates and unemployment statistics fail to explain mounting crime rates, nor do they show that unemployment causes crime. Crosssectional studies comparing crime rates and unemployment trends across different geographic areas are even more difficult to interpret. States and cities differ widely in the nature and extent of the crimes committed within their jurisdictions. Fluctuations in differing labor markets make unemployment figures difficult to compare. Nonetheless, the intuitive sense that if individuals have jobs, they are less likely to commit crimes has resulted in politicians promoting job programs as an antidote to crime. The consequences of these policies have been unclear, leading some to wonder if the causes of unemployment and crime are the same, if some people simply cannot succeed economically no matter what help they receive, or if the problem is simply that criminals choose a life of crime (a return to rational choice notions). Analysts continue to struggle with these questions. Though unable to explain how crime factors relate, researchers continue to point to correlations between delinquency, homicides, and the socioeconomic characteristics of communities. Indicators like population density of households, residential mobility, family disruption, the presence of gangs, gun density, and drug distribution typically characterize low-income communities. All correlate with high crime rates. Studies point out that population density of households, residential mobility, and disrupted family structures, in particular, are significant indicators of crime.105 They are typical of communities with high numbers of teenagers and single-parent households. Research concludes that poverty today goes hand in hand with significant social disorganization. In his study The Truly Disadvantaged: The Inner City, the

247

248

Public Policy

Underclass, and Public Policy, William Julius Wilson wrote of the social isolation of the inner city.106 Beyond the extreme racial segregation of inner cities in relation to other parts of the social fabric, a further breakdown occurs within these communities themselves. People live side by side but do not know one another. Great mistrust exists among neighbors. In these communities, unlike poor communities of the past, parenting becomes highly individualistic. Everyone is a stranger. Intergenerational relationships fall apart. Residents make no positive identifications with a neighborhood, and the neighborhood itself has no explicit community norms and no sanctions against delinquent behavior. A street culture develops with its own set of norms and symbols. Embedded in this culture is a deep distrust for established institutions such as the police, schools, and businesses. Furthermore, given the current ongoing structural economic change toward service production and away from traditional industrial production, little opportunity exists in these communities to find good jobs and move out of the inner-city culture. Crime is convenient, pervasive, and attractive. The crisis for policymakers is where and how to break this cycle. In the 1970s, theories proposing the concept of “defensible space” took hold.107 Here, the objective was to create a more livable and more easily protected environment. City planners embraced these ideas and experimented with better architectural design, improved lighting, and more green space. Forty years later, these experiments have met with mixed success. While still aware of the need to make communities more hospitable, researchers now recommend the use of more informal social controls. Community-watch programs, beat police patrols, and exact-change requirements for public transportation are all examples of the changing emphasis. Increasingly, policymakers have come to consider crime and poverty as social illnesses that need not just deterrence but also improvements in areas such as public health. The complex relationship between crime and poverty defies any simple solution. Better studies, improved social and anticrime programs, and better economic opportunities may help shed light on the issue.

White-Collar Crime White-collar crime is loosely defined as illegal activity conducted in the course of one’s occupation. It differs from organized crime, which is economic gain through illegal business practices like gambling, loan sharking, prostitution, and narcotics. Organized crime is one’s occupation; white-collar crime is perhaps more insidious. The activities of white-collar criminals cut across business and politics, the professions, and labor organizations. The scope of white-collar crime is broad, including financial, environmental, safety, and consumer affairs misconduct. Thus, experts study white-collar crime from three orientations: (1) type of offender (high socioeconomic status or occupation of trust), (2) type of offense, and (3) organizational culture.108

Criminal Justice

The study of white-collar crime dates to 1939. Criminologist Edwin Sutherland, studying those crimes not “ordinarily included within the scope of criminology,” defined white-collar crimes as those “committed by a person of respectability and high social status in the course of his occupation.”109 Sutherland’s definition and research were controversial at the time but are less so today. The FBI defines white-collar crime as “those illegal acts which are characterized by deceit, concealment, or violation of trust and which are not dependent upon the application or threat of physical force or violence.”110 Laws were passed to prosecute white-collar crimes during the 1920s Progressive Era, the 1930s New Deal, and the 1960s consumer protection era. The financial corruption and scandal associated with the economic boom of the 1990s affected many unsuspecting people in the United States. They found themselves caught up in the misdeeds of corporate white-collar executives who exploited their privileged positions at the expense of many. As the economic recession beginning in late 2007 eroded personal savings, jobs, retirement incomes, and homeownership, outraged citizens blamed Wall Street “irregularities” for undermining the US economy. Too often white-collar offenders hide behind corporate or professional sanctuaries, leading to claims that white-collar criminals experience more lenient penalties. Critics say that white-collar crime is just a “better racket.” Unfortunately, the criminal justice system reacts differently to white-collar crime than to street crime. Some criminologists theorize that judges and criminal justice personnel are often reluctant to take white-collar crime as seriously because they identify with the socioeconomic standing of these offenders. An appropriate example might be the savings and loan crisis of the 1980s. After the Reagan administration deregulated the savings and loan industry, some savings and loan owners and executives violated laws and regulations by engaging in fraudulent, unsafe business practices that resulted in billions of dollars of losses.111 Table 8.2 compares prison sentences for these particular offenders with those of selected federal offenders. The authors of the study cited in the table concluded that the latter offenders often received longer sentences, “despite the fact that these crimes almost never approached $500,000, the average S&L [savings and loan] offense.”112 White collar offenders typically have the resources to mount a good defense, and, as argued by Richard Posner, because the “social stigma” associated with white-collar crime is so great and the civil law procedure so costly, whitecollar criminals are best punished by “monetary penalties—by fines . . . rather than by imprisonment or other ‘afflictive’ punishments (save as they may be necessary to coerce payment of the monetary penalty).”113 In part, the legal system’s historical reaction to white-collar crime reflects the difficulty in conceptualizing and measuring it. These crimes do not fit easily into wider definitions of crime. On the sidelines of criminology, they are often complex and easily concealed. They present measurement problems. Responsibility for these crimes is easily diffused, and, sadly, victims are often unaware of what actu-

249

250

Public Policy

Table 8.2 Prison Sentences for Savings and Loan Offenders and Selected Federal Offenders Mean Prison Sentence (in months) Savings and loan offenders All federal offenders convicted of Burglary Larceny Motor vehicle theft Counterfeiting Federal offenders, with no prior convictions, convicted of Property offenses (nonfraudulent) Public order offenses (regulatory) Drug offenses

36.4 55.6 27.5 38.0 29.1

25.5 32.3 64.9

Sources: Federal Criminal Case Processing, 1980–90 (Washington, DC: US Department of Justice, Bureau of Justice Statistics, 1992), p. 17; Compendium of Federal Justice Statistics, 1988 (Washington, DC: US Department of Justice, Bureau of Justice Statistics, 1991), p. 43.

ally has happened to them. In a recent New York Times article, journalist Floyd Norris derided the chief executive officer (CEO) of a large international corporation who claimed he “didn’t know” about the company’s wildly inflated revenues and hidden expenses. The CEO’s defense was that “he worked on the strategy vision part, talking to key clients, being on the outside of the company.” Norris suggested that the bosses walk away while their subordinates go to jail, concluding, “It’s good to be the king.”114 Classifications of white-collar crime include financial manipulations known as “theft after trust,” fraud (including tax fraud), corruption such as acceptance of bribes, and “restraint of trade” such as phony limited partnerships and pyramid schemes. Embezzlement is the theft of money, usually by an individual in a subordinate position against a strong corporation. Corporate crime includes price fixing and “collective embezzlement,” or crime by a corporation against a corporation. Some occupations are more easily susceptible to crime, especially those in frequent contact with money or those that require specialized, technical information. Some industries, like the automobile or pharmaceutical industries, are more vulnerable. A car dealer wants to sell that used car for as much as possible; a pharmaceutical company can so easily falsify a research result. In their study of the savings and loan crisis of the 1980s, Big Money Crime, researchers Kitty Calavita, Henry Pontell, and Robert Tillman explained that “‘collective embezzlers’ were not lone, lower-level employees,” but thrift owners and managers, acting within net-

Criminal Justice

works of coconspirators inside and outside the institution. Indeed, “this embezzlement was company policy.”115 Corporate crime is distinctive because its primary objective is to advance corporate interests, and, thus, Calavita and colleagues find many similar characteristics between corporate and organized crime. Both are premeditated, organized, and continuous. Offenders develop connections to public officials to avoid prosecution. These types of crimes reflect the dark side of the business subculture of competition and profit maximization. Crimes like false advertising, misuse of campaign funds, and occupational and environmental violations are further examples of betrayals of the public trust by business and political leaders. Ironically, most citizens worry little about or are unaware of the effects of this activity. In fact, the systematic, empirical study of white-collar crime did not take hold until recently. Yet while the average bank heist nets a robber $10,000, the average computer crime has reached a figure of $430,000.116 Another study reported that “about 30 percent of business failures were the result of employee dishonesty . . . [and] about 15 percent of the price paid for goods and services goes to cover the costs of dishonesty.”117 Recent theories about white-collar crime apply rational choice theory to the white-collar criminal. These theories argue that self-interest in the absence of control best explains why it occurs. Others disagree, arguing that the wider social context must be explored. Financial performance, the search for profitability, the values of individualism, and the pursuit of wealth—all features of US capitalism—give rise to white-collar crime, a notion first identified by sociologist C. Wright Mills in his work The Power Elite in the 1950s.118 Author D. Quinn Mills argued that psychological traits like obsession with power lead to large-scale misuse and abuse and are evident in recent white-collar crimes.119 The general lack of documentation and prosecutorial activity regarding whitecollar crime is not surprising. Its nearly invisible and very diffuse nature complicates investigation. One investigator complained that it was like “doing someone else’s checkbook.”120 Paper trails are papered over, increasingly with the help of computers and other sophisticated forms of technology. Nevertheless, the FBI has established a special branch of forensic accountants and lawyers to investigate and prosecute white-collar criminals. In 1986, Congress enacted the Computer Fraud and Abuse Act, which has been supplemented by various state laws to counteract computer fraud and abuse.121 Computer specialists are now routine members of law enforcement agency staffs. Their participation, combined with new, tougher sentencing guidelines, means the criminal justice system is starting to focus on these illegal operations. Nothing prepared the US public for the white-collar crime spree of the 1990s. An array of prominent corporations confronted charges of large-scale financial abuse, stock price manipulation, and theft. Beginning with the inflated sales and

251

252

Public Policy

profits of Sunbeam Corporation’s CEO Albert J. Dunlap and continuing to Enron’s notorious creative accounting schemes, the result has been millions of dollars lost to small investors. Enron began as a gas pipeline company and grew into an Internet company involved in energy trading. Company officials, with the help of the bookkeeping wizardry of the accounting firm Arthur Andersen, concealed losses from investors and made a fortune by running off balance-sheet accounting where large capital expenditures were classified as partnerships or leases to keep them off of the company’s balance sheet. Arthur Andersen, which ceased to exist after the Enron fiasco, pioneered an accounting procedure called the “integrated audit.” Essentially, the practice allowed Arthur Andersen accountants to work a company’s books both on the inside and on the outside. In the absence of auditor independence, the accounting industry was compromised so seriously that Congress passed legislation to regulate the profession. Historically, the industry had relied on peer review but, as of 2002, with the creation of the Public Company Accounting Oversight Board established under the Sarbanes-Oxley Act, auditing guidelines and professional discipline have been imposed on the accounting profession. Corporations including WorldCom, Tyco, Adelphia, and ImClone (which ensnared Martha Stewart) have been charged with egregious white-collar crimes—egregious in the sense that the leaders of these large corporations stood to profit whether stockholders prospered or not. In a summary study conducted for the American Bar Association, John Cassidy stated, “From the beginning of 1999 to the end of 2001, senior executives and directors of these doomed companies walked away with some $3.3 billion in salary, bonuses, and the proceeds from sales of stock and stock options.”122 CEO compensation skyrocketed by the end of the twentieth century. Peter Drucker once suggested that the ratio of CEO earnings to average employee compensation should be no higher than twenty times. The AFL-CIO reported in 2012, however, that the average CEO pay of the 237 companies listed in the S&P 500 index was 354 times the average hourly pay ($19.77 per hour) of rank-and-file US workers.123 As Drucker argued, when the salary gap goes beyond twenty times, the disparity makes a mockery of the contribution of the ordinary employee.124 Today’s CEOs and chief financial officers prosper by way of stock options, which they can exercise to vastly increase their salaries. Historically, CEO salaries were tied to the size of a company, but in the late 1970s, CEO compensation switched to stock profitability. Based on models developed by two University of Chicago graduates, Michael Jensen and William Meckling, the use of the stock option was promoted as a way to better tie the CEO incentive structure to the company’s profitability.125 Whereas in the past the CEO worried about employees and customers, this concern was refocused to shareholder value. A stock option is a legal contract that grants the owner the right to buy stock in the future at a certain price. These largely unregulated stock options marked the course for corporate irregularity since they led to creative accounting that overvalued corporate stock. The betrayal by

Criminal Justice

corporate leaders of many trusting employees and investors has alerted the policymaking community to the need for different regulatory devices in the areas of finance and securities. Regrettably, the role of lawyers and accountants is too easily compromised when part of their job is determining just how much a company can get away with. With the white-collar crime price tag estimated by the FBI in the range of $300 billion to $600 billion per year, society can no longer afford to allow professional and business standards alone to regulate the workplace.126 The heavy artillery of criminal law is increasingly being used against white-collar crime. Many in the United States have yet to learn that much greater property loss is associated with white-collar criminal activities than with street crime. Paradoxically, crime prevention funds are allocated in just the opposite way.

Cybercrime Anyone who owns a credit card, shops online, or frequents an ATM very likely has experienced cybercrime! Fortunately, credit card companies act vigilantly to contact consumers immediately if they recognize some compromise to an account. Similarly, online businesses encode consumer credit information through welldesigned software, and consumers are warned regularly about the need to change their myriad passwords. These best practices help, but they simply cannot keep up with the explosion of cybercrime in the twenty-first century. Some critics complain that due to intensive hyping of cybercrime, individuals have become indifferent to it. Still, the inconvenience, cost, and invasiveness of cybercrime pushes it to the forefront of public policy. The term cyber is a morpheme for anything to do with computers, information technology, and virtual reality. Computer vocabulary consists of funky labels, technical jargon, and acronyms that confuse the general public, setting up a barrier between the computer-savvy offender and the average citizen. For example, the term hacking dates to the 1950s when “phreaks,” short for phone freaks, began hijacking (hacking) the phone networks. Phishing drew from the symbol “