Chapter 16 Policymaking and Domestic Policies

Complicated and Opaque Securities

Propelling the subprime mortgage market was the tremendous growth in complicated and opaque securities. Lenders sold the original mortgages to Wall Street and then used the cash to make still more loans. The investment and commercial banks sold packages of mortgages as mortgage-backed securities (MBS). These were then combined with other securities (e.g., commercial mortgages, credit card debt, and student loans) and sold as collateral debt obligations (CDOs).

Taking fees each time a loan was sold, packaged, securitized, and resold, the sellers made rich profits. They reaped even more by leveraging—borrowing to invest in more loans and packages. In 2004, the Securities and Exchange Commission allowed large investment banks to increase their leverage, a policy change the media barely reported. At its height the ratio of borrowed funds compared to total assets soared to 33:1. Investors thereby vastly increased their purchases and profits—but also their potential losses.

Protecting investors from losses, each package could be insured by a credit default swap (CDS). These guaranteed that if any borrowers in an MBS defaulted, the seller of the swap would pay the loss. The leading issuer was the American Insurance Group (AIG), with insurance on more than $400 billion in securities.

These arcane securities were rated “very safe” by the rating agencies. But these raters had an obvious conflict of interest: they were paid by the institutions whose securities they rated—rather like a movie producer paying a reviewer to write favorable reviews of his movies.

Regulation

Gripped by a fervor for deregulation, the government had reduced its oversight of the financial system. In 1999, Congress enacted and President Clinton signed legislation enabling commercial banks, which collect deposits and loan money, to deal in securities—and thereby engage in speculative investments. The government also abolished many restrictions on affiliations between banks, investment companies, and insurance companies.

Regulation was the responsibility of an “alphabet soup” of federal agencies. These included the Federal Reserve Board, the Securities and Exchange Commission, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Deposit Insurance Corporation. Their jurisdictions were splintered and confusing. Some mortgage lenders did not fall under any regulatory agency.

The government sometimes refused to seek regulatory authority even when it was desirable. The Federal Reserve Board, the Securities Exchange Commission, the Clinton administration, and bipartisan majorities in Congress blocked proposals to regulate credit default swaps. Even when they had regulatory authority, agencies failed to use it. The Federal Reserve Board did not investigate mortgage risks, and the Securities and Exchange Commission did not restrict the amount of debt assumed by investment banks.

Monetary Policy

Monetary policyEconomic policy enacted by the Federal Reserve Board to manipulate the money supply and interest rates. involves the amount of money available to the economy from such sources as banks, savings and loans, and credit unions. The Federal Reserve Board (the Fed)The body that supervises the US banking system and executes monetary policy. is responsible for monetary policy. The Fed supervises and regulates banking institutions and maintains the financial system to attain economic stability and promote growth. It uses three tools: the discount rate, reserve requirements, and open market operations.

The discount rate is what the Fed charges commercial banks for short-term loans. Lowering rates increases the banks’ access to money, allowing banks to offer cheaper credit to businesses and the public, thereby stimulating the economy. The Fed does the reverse to slow down an “overheating” economy.

Reserve requirements stipulate the portions of deposits that banks must hold in reserve. By reducing reserve requirements, the Fed increases the money supply, thereby stimulating economic activity. Increasing the reserve requirements combats inflationary pressures.

Through its open market operations the Fed controls the money supply by buying and selling US government securities. To stimulate the economy, the Fed increases the money supply by buying back government securities. To combat inflation, the Fed sells securities to the public and to businesses. This reduces the money supply as the Fed can take the cash paid out of circulation.

Fiscal Policy

Fiscal policyGovernment economic policy involving taxation and spending. is the government taxing, spending, and borrowing. In theory, cutting taxes and increasing spending expand the economy and increase employment, while raising taxes and decreasing spending contract the economy and reduce inflation. Reality is more complex. Higher corporate and personal tax rates reduce the profit margins for companies and the disposable income for the population at large. But the higher tax rates may be necessary for the government to afford its expenditure program, much of which can also increase demand and activity in the economy.

Fiscal policies are inherently political, favoring some people and groups more than and often at the expense of others. No wonder fiscal policies are debated and disputed by politicians and the political parties and lobbied by interest groups. Some of these policies, such as tax cuts, tax increases, and tax deductions (e.g., the oil and gas depreciation allowance), are reported and discussed in the media.

The Administration

The main devisers of President Obama’s economic program, in consultation with his political advisers, are the director of the White House National Economic Council (NEC), the secretary of the Treasury, the chair of the Council of Economic Advisors (CEA), and the director of the Office of Management and Budget (OMB). The president’s Economic Recovery Advisory Board, composed of outside economists, CEOs, and labor officials, was introduced in November 2008.

The NEC coordinates domestic and international economic policymaking. Its director has an office in the West Wing and is responsible for brokering the ideas of the other economic policy advisers and controlling the president’s daily economic briefings.

The secretary of the Treasury usually comes from the financial or business world. The degree to which a Treasury secretary influences economic policy depends on his political skill and relations with the president. The Treasury Department is largely responsible for tax collection, payments and debt services, and enforcing federal finance and tax laws. Its interests include trade and monetary policy, international finance, and capital movements.

The CEA consists of three economists, usually academics. Ostensibly nonpartisan, they are appointed by the president and are members of the presidential staff. The chair of the CEA represents it at the president’s economic briefings. The CEA’s job is to diagnose the health of the economy, analyze trends and developments, and offer recommendations. It also helps produce the president’s annual economic report to Congress stating and justifying the administration’s fiscal and monetary policy and priorities.

The OMB is largely responsible for preparing the president’s budget and for establishing the budgets of federal agencies. It has substantial authority to control the bureaucracies and to enact the presidential policy agenda. It reviews every piece of proposed legislation submitted to Congress. Changes in agency regulations require OMB approval.

Congress

The legislative branch influences fiscal policy through its “power of the purse” and authority over approval of the president’s budget. The president needs congressional consent on all taxes and nearly all federal expenditures as well as any increase of the national debt limit. Congressional committees revise and alter the president’s policies. Congress can also check the Fed by lessening its autonomy in setting monetary policy.

Members of Congress have party preferences, constituency needs, and interest group objectives in mind when considering policies. One or more of these may cause them to oppose or support the president’s proposals. For example, Congress has historically been more protectionist (of domestic industries) on trade policies than presidents.

The Budget

The budgetA statement of the president’s policy goals and priorities for the next fiscal year. It consists of receipts and expenditures. is a statement of the president’s policy goals and priorities for the next fiscal year. It consists of two main parts. Receipts are the amounts anticipated in taxes and other revenue sources. Expenditures (outlays) are what the federal government expects to spend.For a comprehensive analysis of federal budgeting, see Dennis S. Ippolito, Why Budgets Matter: Budget Policy and American Politics (University Park, PA: Penn State University Press, 2003).

The budget is supposed to be submitted to Congress by February 1 of each year. It is studied by the House and Senate Budget Committees with the help of the Congressional Budget Office (CBO). The two committees prepare a budget resolution that sets ceilings for each of the items in the budget. In May, Congress adopts these budget resolutions. Over the summer, the House and Senate Appropriations Committees and their subcommittees decide on the specific appropriations. In September, Congress passes a second budget resolution that reconciles the overall and itemized budget ceilings with the overall and itemized appropriations. By the end of this process the specific budgetary allocations to various spending areas such as health, education, and defense have been approved by Congress. The modified document is then submitted to the president for signing, which he does if he accepts the congressional modifications. The president may choose to veto them, compelling the process of reconciliation to continue.

In reality, the timing of the passage of budget resolutions and the budget itself are dependent on the degree and intensity of partisan conflict, disagreement between Congress and the White House, disagreement between the House and Senate, and other clashes.

The Deficit

The policy differences between the parties are most visible in their attitudes toward what to do about the government’s several years of trillion-dollar budget deficits. President Obama blames the deficits on the spending for two wars, huge tax cuts for the wealthy, and the expensive prescription drug program of the George W. Bush presidency. Republicans blame them on the Obama stimulus recovery plan and additional spending on government programs. The economic disaster worsened the deficit by increasing the government’s expenditures for unemployment compensation and, because many more people are unemployed, reducing the government’s income from taxes.

Complicating the situation, roughly two-thirds of the budget’s expenditures go to entitlementsGovernment programs such as Social Security that guarantee payments to all who are eligible.. These are obligations the government has incurred and must pay, such as for Social Security, Medicare, Medicaid, veterans benefits, and interest payments on the national debt. Most of the rest is discretionary spendingGovernment funds expended for education, law enforcement, energy programs, and the like., funds expended for defense, education, law enforcement, energy programs, and the like. Many of these expenditures can be considered investments.

Reducing the deficit will, therefore, likely require shrinking the growth of entitlement programs, cutting the defense budget, increasing taxes, and eliminating some tax deductions (for example the interest people pay for their mortgages, charitable donations, nonbusiness state and local taxes).

The Republican majority in the House of Representatives desires to cut government discretionary spending drastically while retaining the Bush era tax cuts, including for the wealthiest 2 percent, and not increasing taxes. President Obama and the Democrats accept some cuts to government expenditures but far less than what was sought by the Republicans. Obama and his fellow Democrats want to end the Bush tax cuts for the wealthiest Americans, or those earning over $250,000 annually.

Unemployment

The economic issue with the most potent political repercussions for President Obama and both parties is unemployment. People’s unhappiness about the lack of jobs helps explain the Republicans’ victories and the Democrats’ defeats in the 2010 elections. The official unemployment rate hovered around 9 percent in 2011. Adding some eleven million people who have given up looking for jobs or accepted part-time work increased unemployment to around 17 percent. Almost half of the unemployed had been without work for six months or more. The public sector laid off workers as state and local governments reduced their budget deficits. Although the private sector added jobs, it was barely adequate to absorb people entering the workforce. Many of these jobs paid barely enough to live on, if that.

The parties differ on the best policies to create jobs and reduce unemployment. For Republicans, it is cutting taxes and reducing regulation of business. For Democrats, the federal government should stimulate the economy by “investing” (Republicans replace that positive term with the negative “spending”) in infrastructure, education, child care, and other programs and undertaking public works projects, perhaps also an emergency jobs program. But doing so would likely increase the budget deficit. Given Republican opposition, neither a jobs program nor increases in government spending are likely.

Aid to Families with Dependent Children (AFDC)

Title IV of the Social Security Act of 1935 provided funds for the states to help the destitute elderly, the blind, and children. Its primary purpose was to assist poverty-stricken families with children during the heart of the Great Depression. Over time, it became Aid to Families with Dependent Children (AFDC), granting financial assistance to low-income mothers and their children.Michael B. Katz, In the Shadow of the Poorhouse: A Social History of Welfare in the United States (New York: Basic Books, 1997).

With expansion came criticisms, often conveyed and amplified by the media. The program was seen as supporting “unwed motherhood, idleness, and dishonesty.”Christopher Jencks, “What Happened to Welfare?” New York Review, December 15, 2005, 74. It was disparaged for providing aid to individuals without requiring anything in return. Families were given levels of assistance on the basis of their size: the more children families had, the more aid they received. Women were deterred from attempting to leave welfare by getting jobs because they were limited in the number of hours they could work without losing some of their benefits.

Changes in Welfare Policies

In his successful 1991 campaign for the presidency, Bill Clinton preempted what had been a Republican issue by promising to “put an end to welfare as we know it.” In 1996, after rejecting previous versions, he signed a Republican bill, the Personal Responsibility and Work Opportunity and Reconciliation Act (PRWORA). This helped him get reelected in 1996.

This law replaced AFDC with the Temporary Assistance to Needy Families (TANF) program. The federal government gives states grants in aid and greater autonomy in structuring their welfare systems if they follow rules. Adult welfare recipients are limited to a lifetime total of five years of TANF benefits. State governments lose some of their TANF funding unless they show that significant numbers of their welfare recipients are entering the workforce. To receive benefits, children under eighteen must live with their parents or in an adult-supervised setting.

Since the law was passed, some states have reported decreases of over 50 percent in their number of welfare recipients. However it remains to be seen if the changes in welfare policy have led to less poverty or simply removed people from the welfare rolls“Welfare Reform: With TANF Flexibility, States Vary in How They Implement Work” (Washington, DC: General Accounting Office, 2002), accessed June 6, 2011, http://www.gao.gov/new.items/d02770.pdf. and what the effects of the policy are now that the economy has declined and people who had moved from welfare to employment have lost their jobs.

The federal government does pay the cost of food stamps. Nearly one in seven Americans receives them, with an average benefit of $500 a month for a family of four. Removing the stigma of welfare from the stamps, the government changed the program’s name to Supplemental Nutrition Assistance. Making it even more acceptable, it is supported by farmers and grocery stores.Jason DeParle and Robert Gebeloff, “The Safety Net: Across U.S., Food Stamp Use Soars and Stigma Fades,” New York Times, November 8, 2009, accessed June 6, 2011, http://www.nytimes.com/2009/11/29/us/29foodstamps; and Jason DeParle and Robert Gebeloff, “Once Stigmatized, Food Stamps Find New Users and Acceptance,” New York Times, February 11, 2010, A1.

Social Security’s Solvency

Traditionally, more money has been paid into the Social Security Trust Fund than drawn out, leading to a revenue surplus. But Americans are living longer than ever. Longer lives mean larger payouts from the fund, as there is no limit on the number of years people receive benefits. Also, recent generations entering the workforce are generally smaller in size than their predecessors. By 2040, there will not be enough money in the fund to finance recipients at the current level.For a contrary view, see Joseph White, False Alarm: Why the Greatest Threat to Social Security and Medicare Is the Campaign to “Save” Them (Baltimore: Johns Hopkins University Press, 2001).

Special commissions have issued reports, prominently covered with alarmist stories by the press, about these problems. Proposals to “fix” Social Security have been developed by these commissions, think tanks, other interest groups, and a few politicians. Policymakers are wary of suggesting that they may tamper with the revered system; they make change with delicacy. Thus in 1983, the age of eligibility for full retirement benefits was increased from 65 to 66, but the change wasn’t effective until 2009; the age increases to 67 in 2027.

Additional revenue could be generated by increasing the percentage of the payroll tax or the amount to which it is applied on employees’ wages and employers’ contributions. However, tax increases are never popular among elected officials, so these options lack advocates in Congress.

President Bush’s Proposals

Thinking to trade on the momentum of his 2004 reelection, President George W. Bush went public with a campaign to inspire public and congressional support for his proposals to “save” Social Security.For details of President Bush’s campaign, see George C. Edwards III, Governing by Campaigning: The Politics of the Bush Presidency (New York: Longman, 2007), 216–80. Launching his campaign in his State of the Union address, he embarked on a high-profile “60 Cities in 60 Days” tour. His theme: Social Security was in perilous condition. He proposed to save it through personal (private) savings accounts. People would be allowed to invest a third of their Social Security withholdings into a variety of investment options such as the stock market.

The argument for privatization is that the stock market greatly outperforms Social Security’s trust fund over the long term.The Cato Institute, a conservative think tank, has been a major proponent of privatization. Its recommendations can be found at Cato Institute, “Social Security,” http://www.socialsecurity.org. Over time, therefore, privatized investment would be a boon to the overall size of the trust fund and protect the solvency of the system.

The president appeared at town hall meetings with handpicked, sympathetic audiences. Signs saying “Protecting our Seniors” flanked him. He used the positive and evocative words “choice” and “ownership” to describe his proposals.

President Bush was supported by such powerful interest groups as the US Chamber of Commerce and the Business Roundtable. He also received support from potential beneficiaries of his proposed changes: Wall Street firms would receive billions of dollars to manage personal accounts.

The president faced opposition from Democrats and powerful interest groups such as organized labor and AARP (formerly the American Association of Retired Persons). They were bolstered by experts in Social Security policy who provided information challenging and undermining Bush’s arguments and claims.

Critics of the president’s proposals argued that there was no crisis; that the stock market goes down as well as up, so investing in it is risky and people could end up with reduced retirement income; and that private investment accounts would require the government to borrow about $2 trillion to offset the reduction in payroll taxes to avoid a shortfall in payments owed to current retirees. Most dramatically, the president’s opponents contended that his proposals would destroy the program.

Media Coverage

It was a perfect setup for the news media. On one side were the president and his nationwide campaign; on the other side was the opposition. Experts could be called on to assess the validity of both sides’ arguments. This was all done on a policy issue—the future of Social Security—of public interest and concern.

From the start, media coverage undermined the president. The very first story in the New York Times set the pattern. It was headlined “As White House Begins Campaign for Overhauling Social Security, Critics Claim Exaggeration.”Edmund L. Andrews, “As White House Begins Campaign for Overhauling Social Security, Critics Claim Exaggeration,” New York Times, January 10, 2005, A15. It cited “outside analysts,” including the nonpartisan Congressional Budget Office and academics casting doubt on the president’s arguments. It contained this devastating paragraph: “White House officials privately concede that the centrepiece of Mr. Bush’s approach to Social Security—letting people invest some of their payroll taxes in private accounts—would do nothing in itself to eliminate the long-term gap.”

Perhaps because there was no new news in the president’s appearances and statements, stories reporting them focused on the rigged audiences, the “carefully screened panelists,” and “meticulously staged “conversations.”Jim VandeHei and Peter Baker, “Social Security: On with the Show: President’s ‘Conversations’ on Issue Are Carefully Orchestrated, Rehearsed,” Washington Post, March 12, 2005, A3.

The more the president spoke, the less the public supported his proposals. From early January into May 2005, public opinion about the way Bush was handling Social Security decreased from 41 to 31 percent approval, and disapproval increased from 52 to 64 percent.Gallup/CNN/USA Today poll, January and May 2005.

The president ended his campaign. Personal retirement accounts disappeared from Congress’s policy agenda.

No Child Left Behind (NCLB)

Fulfilling his campaign pledge, repeated in his inaugural address, to close the gap in achievement between poor and minority children and children attending primarily white schools in the suburbs and to improve school performance, President George W. Bush obtained passage of significant amendments to the ESEA in the No Child Left Behind ActPresident George W. Bush’s policy, enacted into law, to improve education. of 2002. He signed the legislation into law in an elaborate ceremony accompanied by his bipartisan congressional allies.

The law was a major policy accomplishment by the president. Placing its administration in the Education Department, he overcame the opposition of some his party’s leaders who wanted to abolish the department. Imposing federal requirements on schools, he radically changed federal-state relations in education.An account of education policy and politics is Patrick J. McGuinn, No Child Left Behind and the Transformation of Federal Education Policy (Lawrence: University Press of Kansas, 2006); a critique of the law and suggestions of ways to improve it is Scott Franklin Abernathy, No Child Left Behind and the Public Schools (Ann Arbor: University of Michigan Press, 2007); and a slashing attack on education policy, including NCLB, as more spectacle than rational is Mary Lee Smith with Linda Miller-Kahn, Walter Heinecke, Patricia F Jarvis, and Audrey Noble, Political Spectacle and the Fate of American Schools (New York: Routledge/Falmer, 2004).

The law called for states to implement accountability systems covering all public schools and students and to test all students in grades 3–8 in reading and math. Schools failing to make adequate yearly progress toward goals are subject to corrective actions and restructuring. To increase parental choice for children attending an underperforming school, schools are required to let low-income parents use allotted federal funding to pay for tuition at a school in the district that has attained acceptable standards.

The Obama Administration

President Obama’s Secretary of Education Arne Duncan promised to rectify the defects of NCLB. He embraced competition, accountability, parental choice, and incentives. Specifically, he proposed to raise academic standards, end the misleading identification of thousands of schools as failing, turn around schools that were truly failing, recruit and retain effective teachers, track students’ and teachers’ performance, and tie teacher evaluation to students’ test scores. He wanted to increase the number of charter schools—a broad term describing the more than five thousand private schools set up mainly in urban areas, with local and state and private funds, to compete with public schools.Carlo Rotella, “Class Warrior,” New Yorker, February 1, 2010, 24–29.

Duncan encouraged the development of national standards in English and math to be adopted by the states, specifying the skills students should have at each grade level. Although the timetable for implementing the standards is uncertain, states will have to rethink teacher training, textbooks, and testing.

Duncan also created the Race to the Top competition allocating $4.3 billion in education aid to states that comply with the administration’s educational goals. But this is a modest sum, won by only a few states, compared with the approximately $650 billion spent on K–12 education annually.

At the same time, states and localities beset by budget deficits are slashing their expenditures for education. They are doing this by dismissing teachers, hiring few new ones, increasing class sizes, and cutting programs.

So even though the federal government is now far more involved in education than ever before, it prods but cannot compel the states and localities to do its bidding. Moreover, some states and school districts still object to federal intrusion and mandates. Besides, the quality of education often depends more on a student’s family and community than the schools, starting with whether children are healthy enough to learn.

Medicare

In 1965, the most extensive health coverage legislation in American history became law. MedicareFederal program of medical benefits to those over sixty-five. helps citizens sixty-five and older meet their primary medical care needs. It covers around forty million people.

Medicare has two parts. Part A pays some of the hospital charges for individuals who are eligible for Social Security benefits. It is funded by payroll deductions and matching contributions from a patient’s employer. People are responsible for both a deductible charge that must be paid before Medicare payments are authorized and copayments for many hospital-related services. There are no limits on the total costs people can incur.

Part B is an optional insurance system covering health-care costs outside of hospital stays for physician services, medical tests, and outpatient visits. Participants pay a monthly fee, deductible charges, and copayments. The government contributes about three-fourths of the overall costs.

Prescription Drugs

Medicare’s lack of a prescription drug benefit was particularly hard on the elderly and disabled, who commonly take several prescription drugs. Responding to this need, the Medicare Prescription Drug and Modernization Act of 2003 contains two types of assistance programs. The first is a prescription drug discount card program saving Social Security recipients roughly 15 percent to 25 percent annually.

In the program’s more substantial part, individuals pay an annual premium and deductible in return for the federal government paying 75 percent of their prescription drug costs up to $2,250.

Because of exploding health costs and the new prescription drug benefit, Medicare may be in worse financial shape than Social Security. According to the program’s trustees, its hospital insurance trust funds will run out of money in 2019.Robert Pear, “Medicare Costs Expected to Soar in Coming Years,” New York Times, March 24, 2004, A1, 15.

Medicaid

MedicaidProgram that finances medical and long-term care for low-income and disabled adults and children. was created in 1965. It provides health-care coverage for approximately fifty million poor and disabled Americans. More than a third of them are over sixty-five. The federal government pays about half the costs of their medical care, including hospital stays, physician fees, and various diagnostic services. States pay the remainder of the costs of the coverage.

The federal government requires coverage of the blind, the disabled, and children (Children’s Health Insurance Program, https://www.cms.gov/home/chip.asp) under the age of eighteen whose family’s income is below the poverty level. Otherwise, states decide eligibility for inclusion in Medicaid. State standards vary significantly; someone eligible in California might be excluded in Texas. Nonetheless, Medicaid pays approximately two-thirds of the costs of nursing home care in this country.

Because of the high cost of health-care services covered under Medicaid, state governments have become increasingly burdened financially. Other than education, Medicaid takes up the single greatest percentage of state budgets, a cost that is increasing annually. This situation has caused states to cut back on a number of the program’s optional medical services.

The Uninsured

Around fifty-one million Americans lacked health insurance. This figure included approximately nine million under the age of eighteen who were eligible for but not enrolled in Medicaid or the Children’s Health Insurance Program. Some twenty-eight million people came from households with income above the poverty line but whose employers did not provide them with health insurance. Their work was often temporary or part time and low-paid. About fifteen million of the uninsured had income below the poverty line yet were not receiving Medicaid.

Politicians proposed policies in response to the lack of health care. Most notably, the Clinton administration, led by First Lady Hillary Clinton, proposed health-care coverage for all United States citizens. This 1994 initiative died for lack of support in Congress, in part because of its complexity and a negative advertising campaign by interest groups against it.Jacob S. Hacker, The Road to Nowhere: The Genesis of President Clinton’s Plan for Health Security (Princeton, NJ: Princeton University Press, 1997).

President Obama and Health Care

After he assumed office in 2009, President Obama took up health care as a major policy initiative. His administration negotiated (i.e., bargained) with every major sector of the health-care industry to support its health-care proposals. Motivating the industry was the drop in the number of employers insuring their employees or providing generous coverage and the number of employees who could afford to pay their share of the cost of insurance. This resulted in fewer Americans with insurance coverage and thus able to pay for hospital care, doctors, and drugs.

At the heart of the bargain “was a simple quid quo pro: accept greater public regulation and involvement in return for greater guaranteed financing.”Jacob S. Hacker, “The Road to Somewhere: Why Health Reform Happened,” Perspectives on Politics 8, no. 3 (September 2010): 865. That is, the government would require people to have insurance, thereby greatly expanding the market. This bargain did not prevent each industry group from lobbying to modify or scuttle provisions in the legislation that might reduce its members’ income. The drug industry opposed studying the effectiveness of treatment; the American Medical Association lobbied to kill the proposal for a government-run insurer (i.e., the public option); hospital lobbyists objected to a Medicare oversight board that could reduce payments.David D. Kirkpatrick, “Groups Back Health Overhaul, but Seek Cover,” New York Times, September 12, 2009, A1.

In March 2010, the Democratic majority in Congress passed the Patient Protection and Affordable Care Act, arguably the most important domestic legislation in decades. It passed without a single Republican vote and despite millions of dollars of advertising aimed at the forty Democrats in the House deemed vulnerable to defeat if they voted for the bill. In this instance, party loyalty, appeals from party leaders (especially the president), advertisements from supporters of the legislation, and the realization that this was the most propitious opportunity to enact health reform in many years overcame the opponents’ arguments and advertising.

The law is complicated; many provisions do not go into effect until 2014 or later. Bureaucrats will have to write the thousands of pages of rules, define terms such as “benefits,” and clarify the details. States will have to implement many provisions. Lobbying will be intense. The Republican majority in the House of Representative voted in 2011 to repeal the law and is likely to strip away funds for putting the law into effect. The law’s constitutionality has been challenged in court—cases that, probably consolidated, will likely reach the US Supreme Court.

If it remains in effect, the law will eventually provide health insurance for around thirty-two million uninsured Americans. It will expand eligibility and subsidize lower premiums for Medicaid, transforming it from a government health-insurance program just for poor families into a much wider program to include millions of the poorest Americans, including able-bodied adults under sixty-five who earn no more than 133 percent of the federal poverty level. People not covered by their employers and who earn too much to qualify for Medicaid can buy coverage from state-based insurance purchasing organizations. The law prohibits insurance companies from rejecting people for preexisting medical conditions, removes annual and lifetime limits on payments by insurance companies, and enables children to stay on their parents’ policy until they turn twenty-six.

Such a complicated law raises a host of criticisms and questions. Are its costs affordable? Can Medicaid absorb the additional people, especially when—even now—many doctors do not accept Medicaid patients on the grounds that the reimbursement it pays is too low? Will insurance premiums continue to rise substantially? Is it constitutional to fine people who remain uninsured? Can the law curb unnecessary care (whatever “unnecessary” means in practice)?

Agenda Setting

People have many concerns. These become part of the policy agenda when they are seen as requiring government attention and action (e.g., global warming). In agenda settingConditions are seen as requiring government attention and action., then, what were conditions ignored or to be endured become problems requiring government intervention.Regina G. Lawrence, “Defining Events: Problem Definition in the Media Arena,” in Politics, Discourse, and American Society, ed. Roderick P. Hart and Bartholomew H. Sparrow (Lanham, MD: Rowman & Littlefield, 2001), 92.

The media move a subject onto the policy agenda when they give it extensive coverage and frame it as a problem demanding a response by policymakers. For example, widespread reporting of how many Americans were sickened by tainted eggs and spinach eventually resulted in a law that overhauled the food safety system and gave more authority to the Food and Drug Administration.

The media can put a topic on the policy agenda by transforming it into a news iconThrough extensive media coverage, something or someone symbolizes a situation that then is put on the policy agenda.. A garbage barge that for three months unsuccessfully sought a port on the East Coast to unload its cargo received extensive news coverage, was joked about in the monologues of late-night talk show hosts and mentioned in comedy shows, and became the subject of polls. With environmental interest groups weighing in, the barge grew into an icon symbolizing a wasteful society with ever-mounting garbage and nowhere to dump it. It put garbage firmly on the policy agenda.W. Lance Bennett and Regina G. Lawrence, “News Icons and the Mainstreaming of Social Change,” Journal of Communication 45, no. 3 (Summer 1995): 20.

The media can keep subjects off the policy agenda or enable policymakers to keep them off by ignoring or downplaying them. Or their coverage can give the impression, rightly or wrongly, that a subject does not require resolution through the policy process. Coverage may be insufficient when policymakers are disinterested: the scant media attention to the AIDS epidemic during its early years did not put it on the policy agenda in the face of the Reagan administration’s indifference.

Formulation

When an issue is on the agenda, policymakers often propose policies to solve it. They sometimes have several alternative policies from which to choose. Traffic safety can be sought by “building more highways (the solution of the 1950s), requiring safer cars (the solution of the 1960s), putting drunk drivers behind bars (that of the 1980s and 1990s).”Frank R. Baumgartner and Bryan D. Jones, Agenda and Instability in American Politics (Chicago: University of Chicago Press, 1993), 124.

The media influence policy formulationPolicies proposed to solve an issue on the agenda. by how they frame the subject, their coverage of policymakers’ arguments and debates, and the policy alternatives they report. Thus the production, distribution, and consumption of illegal drugs can be framed as a law-and-order problem or a health issue (e.g., medical marijuana) or as an everyday recreational activity.

Media coverage of policy formulation infrequently dwells on substantive arguments and alternatives. Depiction of the legislative process is typical: the news media usually frame it as conflict and strategy. And because the news media cover only a few major issues, policymakers are often able to formulate the details of policies without much scrutiny or public awareness.

The media spotlight can speed up policy formulation on major issues. But speed tends not to work well for deliberation: deciding what to do about a problem can take sifting and winnowing. News coverage pushes for a quick response from policymakers, thereby often favoring the most available alternative, perhaps regardless of whether it effectively addresses the problem.

Adoption

For formulated policies to be put into effect, they must be adopted by the relevant institutions of government. The media can be a forum in which various sides argue their cases for policy adoptionThe relevant institutions of government enact a formulated policy.. But coverage is sometimes one-sided. When favorable, it enhances a policy proposal’s likelihood of adoption. When unfavorable, it can undermine a proposal, as we documented in our discussion of President Bush’s proposals to change Social Security. As we also noted, negative advertising helped kill the Clinton administration’s health-care proposal.

Adoption of a policy legitimizes it.Rodney Barker, Political Legitimacy and the State (Oxford: Clarendon Press, 1990). The media usually give positive coverage to the enactment of significant laws, thereby adding to their legitimacy. But not always—remember the criticism of and attacks on the new health law disparaged as “ObamaCare.”

Enduring Image

The Law-Signing Ceremony

These ceremonies give the impression of harmony and finality in the policy process.

Source: Photos courtesy of the White House. Adapted from http://commons.wikimedia.org/wiki/File:Obama_signs_DADT_repeal.jpg, http://commons.wikimedia.org/wiki/File:EisenhowerAtomicEnergyAct.jpg, and http://commons.wikimedia.org/wiki/File:Immigration _Bill_Signing_-_A1421-33a_-_10-03-1965.jpg.

An enduring image of the US government is the president signing into law a piece of legislation just passed by Congress. The president is surrounded by the members of Congress responsible for and citizens benefiting from the law’s passage. The ceremony requires many pens because after each stroke the president gives one to someone associated with the legislation.

The ceremony is a photo op for all the participants. It presents the president as intimately involved in policymaking as head of the government, Congress and its members as effective lawmakers, and the law as final.

The image is compelling, but the impressions it conveys are disputable. The president may not have been intimately involved in proposing the law, deciding on the law’s key details, and pushing for passage of the legislation. Members of Congress are more or less satisfied with the law, which may have been jerry-built out of compromises, concessions, the dropping of vital provisions, and the inclusion of unnecessary or damaging ones as favors to legislators who would otherwise oppose passage. And with implementation and administration to come, the effects of the law are far from final.

Implementation and Administration

Policy decisions require policy implementation and administrationDevelopment of the specific standards and procedures that fulfill the intent of the policy.. Congress relies on the bureaucracy to develop the specific standards and procedures that fulfill the intent of the policy.

Messy reality can make administration and implementation difficult for even the most conscientious and dedicated bureaucrat. Nor are bureaucratic incompetence, dereliction, ineptitude, and scandals unknown. Policies may be ignored or subverted at the state or local level.

The media can be a significant force at this stage of the policy process. But most policy implementation and administration take place out of the media’s view and are time consuming to find and expose, even with investigative reporting. Thus media coverage is sporadic and focused on a few policies.

Evaluation

Policy evaluationAssessing a policy’s effectiveness., or assessing a policy’s effectiveness, can be complicated.For an overview of policy evaluation, see B. Guy Peters, American Public Policy: Promise and Performance, 8th ed. (Washington, DC: CQ Press, 2010). Many public policies aim to achieve broad conceptual goals such as “healthy air quality.” Or a policy may have multiple, not necessarily compatible, objectives. The 1996 Telecommunications Act was intended to unleash the power of competition, spur technological innovation, create jobs, and reduce cable rates.Patricia Aufderheide, Communications Policy and the Public Interest (New York: Guilford Press, 1999).

As we showed in our box on No Child Left Behind, the media can evaluate policies through their reporting. They also report and therefore publicize some of the policy assessments of government agencies, policy oversight studies by congressional committees, and congressional hearings. They report the findings of public interest groups (e.g., that many of the recipients of tobacco subsidies do not grow tobacco) and transmit the revelations of whistle-blowers (e.g., documents showing that the tobacco companies long knew that smoking causes diseases).

Such journalism can lead to outrage from the public and from policymakers, demands for reform, and governmental action. Policies are reappraised, changed, and even junked.