Public Policy and Economics

Basic Concepts in Public Policy-2

These are excerpts from Cochran/Malone text identified earlier in the course. 

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BASIC CONCEPTS IN PUBLIC POLICY

The first class meeting in a public policy class is extremely important because it can set the tone for the entire course. Often students have many misconceptions regarding the subject matter of public policy.

Many expect the course to focus on the legislative process, or provide clear solutions for society’s problems. Whatever students’ beliefs are, they all have an interest in public policy.

We are affected by public policy decisions from before birth until after our death. Our goal, as instructors, is to convey the importance of policy to them.

The study of public policy is a dynamic part of political science. Part of the fun of teaching public policy is the intellectual surprises that result when students discover new truths through an analytical approach.

It is recommended that on the first class meeting we confine ourselves to introducing a few of the concepts that are fundamental to public policy. We usually begin by defining public policy.

We will be affected by government policies in every aspect of their lives. We spend a great deal of time thinking about public policy issues: education, health care, tax policy, interest rates, criminal justice, the environment, and government spending policies.

Sometimes the front page of a major newspaper can effectively illustrate the relevance of the course by providing several examples of policy issues. Later, we discuss some concepts that make public policy inevitable (many students today lean toward the belief that most issues should be left to the market to resolve).

Some of the concepts will include defining scarcity, the necessity of choice, and opportunity costs, the necessity of government to allocate collective choices. You may have some key concepts and organizing principles to be utilized throughout the course.

Rational self-interest provides an opportunity to draw students into a discussion that illustrates a key concept of this text. For example, why did you decide to attend college? Why did you decide to attend this university? Why did you decide on your major? What were the benefits of each of those decisions? Possible benefits may include: low tuition, prestige degree, high grades, job opportunities. Possible costs: difficulty of course load, high tuition, narrow training.

Most students have not thought of these decisions in terms of opportunity costs, economic scarcity, cost-benefit, or incremental decision-making. And each decision is based on principles of rational self-interest.

Students frequently conclude that self-interest really is the same as selfishness. They tend to move easily to the next non sequitur by concluding that altruism is actually self-interested (and therefore selfish) behavior.

But an altruistic person benefits from helping others precisely because he or she is not selfish. Otherwise we could not make a moral distinction between the actions of Mother Teresa or Adolf Hitler. We think it is important to confront this issue head-on. If students are confused on this point, they will tend to dismiss policy positions based on ethical views as cynical, or in any even without merit. You might want to go over this section of chapter one in class.

Cochran and Malone’s text introduces the student to the vocabulary of public policy. In it, the authors define public policy. They next develop the reasons why government involvement in political decision-making to achieve societal goals is inevitable.

The question is not whether government should be involved, but how to make government responsive to society’s needs. Scarcity is the central element that makes public policy necessary. And since economics is a study of how to employ scarce resources to achieve objectives in the most effective manner, public policy analysis will necessarily utilize many economic principles.

Advances in the interdisciplinary research in the social sciences with a special emphasis in political science and economics, have created the field of public policy.

Public policy, as a discipline, is rooted in the past, but tries to project the future.

Policy studies are distinct from historical approaches to studying policy, which tend to focus on descriptions of past policymaking successes and failures.

New approaches to policy analysis seek out a theoretical framework and propositions against which actual experience can be compared in order to understand, explain and increasingly predict policy behaviors.

While policy analysis focuses on real phenomena, the study of public policy is decisively theoretical. It is increasingly grounded in the rational self-interested “economic man” model.

Public policy thus begins with a rational and integrated theoretical view of politics and economics, and proceeds from an interdisciplinary nature, and tries to explain policy outcomes from an empirical perspective.

At the same time, policy-making is not value free. Value free public policy is an oxymoron (contradictory words).  Policy-making is based upon a dissatisfaction with the current state of affairs in some area of public concern and a desire to project a change into the future.

Policy objectives are based upon values. Therefore it is critically important that we acknowledge and be aware of our values and the values embedded in any given policy.

There is a certain irony in public policy’s close association with economics, which tries to be value free, because, public policy cannot be disassociated from values.

What is Public Policy?

Public Policy consists of political decisions for implementing programs to achieve societal goals. Public policy is whatever action the government decides to undertake.

Individuals acting separately are unable to achieve goals that may be in their own and other people’s interests. Thomas Hobbes, the political philosopher and social contract theorist wrote that in a state of nature, man is in a state of war of “everyone against everyone.” In such chaotic conditions life is “solitary, poor, nasty, brutish, and short.”

The American Revolutionaries united to provide for security by forming a government to collectively advance the interests of the people. Thomas Jefferson stated in the Declaration of Independence that governments are instituted to secure the alienable rights of life, liberty, and the pursuit of happiness. He held that such governments derive their just powers from the consent of the governed. The citizenry is free to construct a government “laying its foundation on such principles and organizing its powers in such form, as to them will seem most likely to effect their Safety and Happiness.”

The preamble to the Constitution continued with the idea that the function of government is to effectively undertake common goals. The purpose of the Constitution is “to form a more perfect Union, establish Justice, ensure domestic Tranquility, provide for the common defense, promote Welfare, and secure the Blessings of Liberty.”

What is lacking in the United States today is a general agreement upon what would improve the General Welfare. We lack an agreement on what constitutes “the public good.”

Opportunity Costs

It is useful to show how scarcity requires that choices be made. Scarcity forces us to make choices concerning what society will produce and for whom. The fact that we must make a choice indicates that some opportunities will be sacrificed. A forgone opportunity is what is called the opportunity cost because the cost of a choice is the loss of the next best alternative. Every choice, whether made by individuals or the government, involving scarce resources also involves opportunity costs. These choices have different opportunity costs for distinct individuals.

If an individual had unlimited wealth, he or she would not have to make choices, and hence they would have no opportunity costs. To have unlimited wealth would be like lowering the price of goods to zero; that is precisely the difference between a wealthy person and a poor one. The opportunity costs for a poor person are always significant. For example, the opportunity cost for a gallon of milk might be a loaf of bread. If you buy milk, you might not have the ability to buy bread. A person with a higher income can buy both milk and bread.

It is the fact of scarcity that encourages competition for resources. As a practical matter, most differences between liberals and conservatives would disappear if there were no scarcity. Consider for example, a situation in which all goods were free goods, that is, you could have all you wanted at no cost. You would not have to make choices. Thus in a condition in which there was no scarcity, there would be no opportunity costs.

If a poor immigrant were to come ashore in a magical country with no scarcity, no member of the magic kingdom would begrudge the new arrival food, clothing, or shelter, because he or she would not have to give up anything to provide those resources to the stranger in their midst. It is only when there is not enough to go around and there are opportunity costs involved in acquiring goods, that the citizens might disagree concerning their responsibility to provide the immigrant with economic (i.e., scarce) goods.

The production-possibilities frontier (PPF) provides a useful way to illustrate the concepts of scarcity, choices, and opportunity costs. It is also useful in illustrating how scarcity affects policy choices made by individuals and political parties. If we had unlimited resources liberals and conservatives would not oppose assistance to the poor.

They disagree because we have limited resources. And giving assistance to the poor means that other things must be sacrificed. Some are unwilling to do this. This also helps to explain why it is a bipartisan public policy goal to encourage economic growth. Both liberals and conservatives want the economy to grow because it means that more wealth is available to be distributed, which lowers opportunity costs.

And everyone agrees on the value of reducing unemployment. Operating inside the frontier as indicated by unemployment means that the economy is operating inefficiently. Unemployment means that all productive resources are not being used which lowers the standard of living for the society (it will also require a transfer of wealth from those who are employed to the unemployed).

Full employment and a growing economy are two goals upon which all agree. Disagreement occurs regarding how to achieve these goals.

Rational Self-Interest

Rational self-interest means that individuals have preferences and intend to act in a way to achieve their preferences. The model of rational interest means that individuals will react to changes in costs and benefits to themselves in predictable ways.

When costs rise relative to benefits, less will be demanded. Rational self-interest is not to be confused with selfishness. Nor does it mean that individuals are motivated only by material goods. Keep in mind that rational self-interest as a model does not indicate approval or disapproval of individual preferences.

The Tragedy of the Commons

Individual rationality and self-interest may be opposed to group self-interest. Garret Hardin’s metaphor of the “Tragedy of the Commons” graphically illustrates how everyone working in his or her own self-interest without regard to the welfare of the group will work against “the general welfare.” This metaphor directly challenges the idea that “laissez faire” assumption of many libertarians that self-interested behavior will maximize the well being of society. In fact if everyone pursues only their narrow self-interest, the common good must suffer.

Social Justice

Social Justice provides a basis for a separate lecture/class discussion on normative considerations in public policy. The two perspectives, given as examples in the text, illustrate the basic division between a liberal and a conservative perspective.

Students are introduced to John Rawls and Robert Nozick in this text for the first time (their views will be developed further in later chapters). John Rawl’s A Theory of Justice is widely regarded as a very important work in political philosophy in part because his was the first non-utilitarian treatment of justice in over a century and a half. As the title indicates, Rawls is concerned with a theory of justice and not a theory based on costs and benefits. Robert Nozick’s Anarchy, the State and Utopia was intended as a rebuttal to Rawls’s work.

It is useful to develop the basic positions of both political philosophers. [One possibility would be to assign two or three students to give a report that expands on the position of Rawls and a second group to develop Nozick’s response.]

For Rawls, the sort of society that we would create before we knew our place in the society would be based on principles of equity. For Nozick, equity is irrelevant. Rather the function of the state is limited to protection of individual property and little more.

This may lead to lively discussion since students are often eager to take sides on the merits of the two philosophers. For the student of public policy, this debate provides the best clarification of liberal and conservative traditions in America.

Public policy is concerned with what society should be like. It is concerned not only with individuals pursuing their individual self-interest that might conflict, but also with conflicting values. The result is a lack of agreement about how to improve society. This philosophical debate symbolized by the positions outlined by John Rawls and Robert Nozick, will be reflected throughout the text in examining different ethical perspectives.

Politics and Economics

Before leaving Chapter one, a lecture and class discussion on the pervasive role of POWER is helpful. Scarcity encourages competition. There are material incentives based upon self-interest to succeed in the competition.

In a market society material rewards and economic security explains much of the self-interested behavior of individuals and most economic activity. Most writers (including Rawls, Nozick, and Adam Smith) agree that the state was originally created to legitimize the use of force to defend the right to property acquired by competition.

To the minimalist, the state’s primary purpose is to defend the right of property against those without property. Modern day ideological conservatives still tend to see this as the only valid role for the state.

In democratic societies with governments dependent upon voter consent, and limited by the constitution, the public sector is growing. Redistributive policies have grown out of the Judeo-Christian concepts of ethics and social justice. Public policy is the outcome of the political struggle over who gets what.

Power usually takes the form of the use of violence, wealth, and knowledge (sources of power) to control human behavior. None of these forms of power are equally distributed. The threat of violence rather than its actual use may be sufficient to bring compliance with another’s wishes.

In earlier societies, wealth generally flowed from power. Those who had power (for example, organized crime) can still seize or coerce wealth from others. But wealth can be used to obtain power as well. Those with wealth can donate money to candidates for political office so that they will pass laws supportive of the donor’s rational self-interest. In such cases, wealthy individual’s interests will be protected with the threat of force by the state.

In the modern nation-state, there is presumably a monopoly on the legitimate use of force that resides in the state. Thus all illegitimate use of force must be a violation of the law or its enforcement.

In modern legal communities, with the threat of private violence outlawed (or pursued through state organs including the police or the military), violence is a crude tool because it tends to be primarily punitive. Wealth is more adaptable to different situations. It may be used negatively (threatening to fire an employee or stop their wages for low quality work) or positively through promising rewards (such as bonuses for superior performance).

Francis Bacon first said: that “knowledge is power.” In modern technical societies knowledge is the most versatile of all power sources. Knowledge can be used not only to punish and reward, but to multiply force and wealth. For example, knowledge is embedded in “smart bombs” used by the military, and a modern economy is dependent upon the ability of computers to manipulate data and information. Of course the greatest power is possessed by those who have access to all three sources.  Alvin and Wendy Toffler’s Power Shift (1990) is an excellent source for an examination of such power in modern societies.

Much of the political struggle over public policy is a power struggle, based upon values, to legitimize support for or against a policy. Therefore it is very important that students be encouraged to analyze the costs and benefits of what government policy is and what we believe policy should be.

In democratic societies, government policy presumably reflects the general will of the people. Policies are generally categorized by the technique of control used by policy makers. Patronage or promotional techniques motivate people by providing rewards for their compliance. The rewards usually take the form of subsidies, contracts, and licenses. Regulatory policies, by contrast, threaten sanctions for noncompliance. Redistributive policies manage people by influencing the economy as a whole through monetary and fiscal policy.

Command and Market Economies

A class discussion that puts the market system into perspective is also useful. Economic systems are typically categorized as being primarily one of three types: Traditional, Command (or Planned), and Market economies.

Economic systems exist in their pure form only in the abstract. In the real world there is considerable overlap. Thus economies based on tradition often overlap significantly with Planned economies. And Market economies today have significant planning sectors.

In recognition of this, the American economy is referred to as mixed-capitalism. Every economic system, regardless of its particular orientation must deal with three basic questions. They are “What to produce?” “How to produce?” And “for whom are the goods to be distributed.”

Systems based on tradition and command, tend to lack effective incentives to motivate people to produce. But both systems tend to provide for everyone in the community. All are not treated equally, but everyone is generally entitled to the proceeds of the community. Recall Marx’s dictum, “From each according to their ability, to each according to their needs.”

Most students associate rationing with planned economies, and are often shocked to learn that the market capitalism of America is based on strict rationing. Dollar bills are the rationing coupons of the society. Goods are distributed to those with sufficient coupons. The poor, without money, are not entitled to any of society’s produce in capitalism. As we shall see, in order to have some treated very well by society, others must be treated more harshly.

Because we are not inclined to accept the outcome of the market, the government redistributes some income in the form of welfare programs. Government intervenes in this case to overcome market results. The government also intervenes to provide public goods, which can only be provided by collective decisions.

The communal nature of public goods leads to the problem known as the free rider. A free rider is someone who gets a free ride on someone else’s purchase of a public good. Since non-payers cannot be excluded from using public goods individuals have an incentive to avoid paying their share in taxes if possible. 

Discussion Rubrics

Discussion Rubrics

Discussion Rubrics
CriteriaRatingsPts
This criterion is linked to a Learning OutcomeClarity and Professionalism10 ptsSuccessfully Accomplished- Careful and concise writing. Language is clear, precise, and grammatically correct. Clearly follows teacher’s instructions.6 ptsPartially Accomplished- Language is mostly clear and grammatically correct, but lacked specificity.0 ptsNot Accomplished- Language is vague and/ or incorrect grammar and sentence structure interfered with message clarity.10 pts
This criterion is linked to a Learning OutcomeKnowledge and Insighfulness20 ptsSuccessfully Accomplished- Responses reflect deep understanding of concepts and are well supported with specific examples from the assigned materials. Responses are insightful and reflect appropriate application of concepts to the particular context addressed in the assignment questions.12 ptsPartially Accomplished- Responses reflect basic knowledge of concepts, but did not fully support them with specific examples from the assigned materials. Responses are mostly correct, but do not fully demonstrate insightful reflection or application of concepts.0 ptsNot Accomplished- Responses failed to reflect basic understanding of the assigned readings and/or materials.20 pts
Total Points: 30

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