Question 2: Guard Dogs & Watch Dogs
Corporate America had grown so powerful and pervasive that it can manipulate the government and its agencies to further its goals. Ideally, the government, which comprises the executive, Congress, and the judiciary, is expected to regulate the economy. While the judiciary has remained largely independent (even though ideological factors still play a role), Congress and the executive have become too deeply entangled with private individuals and firms that policy decision-making is not always driven by public interest. Harvey (2007) argues that the rise of neoliberalism in key countries across the world has seen the reduction of the power of organized labour, coupled by the increasing power and cohesion of corporations and businesses as well as their capacity as stakeholders to apply pressure on governments.
This power is often used directly through market behaviours, financial institutions, capital markets, investment movements across borders. The same power is often exercised indirectly through lobbying, corruption and influencing of election outcomes. Such is the influence of lobby groups, for example, that foreign governments buy influential think tanks in Washington in order to influence decisions on Capitol Hill. For instance, the Norwegian Foreign Ministry spent $5 million in 2013 on a Washington Think Tank to influence the Obama administration and Congress to double spending on foreign development aid.
The influence of power lobby groups and businesses in the US policy making is perhaps best evidenced by the recent policies that have been made by the government. Following the Great Recession, the Obama administration plowed money into private companies that were considered too big to fail. While it is true that the collapse of companies such as AIG, General Motors and Ford would have worsened the economic crisis both in the United States and elsewhere in the world, the intervention begs the questions as to whose interests the government really serves. The government (along with the Federal Reserve) cut interests rates to as low as 0.5% and increased government spending to ensure that the economy was out of the recession. This latter policy is in line with the government’s regulatory and stabilizing functions, but pumping money directly into private companies is a reflection of the power of that these companies have on the government.
The government (Executive, Federal Reserve, and Congress) has two powerful tools that it uses to regulate the economy, which has huge effects on different economic agents. They control the fiscal and monetary policies, which they use to regulate economic performance, redistribute income (through taxation policies). Income redistribution and social welfare promotional programs e.g. social insurance comprise social policies, while policies that promote growth, stability, and competition are economic policies. The Obama administration is famous for taxation policies that redistribute income from the wealthy to the poor through the expansion of education, infrastructure, health care and welfare programs. However, Democratic governments often tend towards this end, while GOP governments generally tend to use fiscal policies to support “job creators”. Regardless of the government in power, big companies still have a direct and indirect influence on government decision-making, which may prove detrimental to the interests of the common citizens. The Federal Reserve, which controls monetary policy, is also driven by the interests of Wall Street and other large financial institutions. While there is a legitimate reason for the Fed to promote the interests of big businesses because they have a direct impact on the economy, this promotes a moral hazard among large companies. In a further illustration of the power exercised by large companies, Katznelson, Kesselman, & Draper (2013) and Kocieniewski (2011) argue that while the corporate tax rate is supposed to be 35%, the applicable rate for most corporations is about 20%. This is because these companies use sophisticated accounting practices, lobby the government or use other influence to ensure that their tax obligations are minimized. The country’s tax system imposes high rates accompanied by subsidies, special tax breaks and shelters, which are meant to make American multinationals are among the world’s largest tax evaders.
It is, therefore, clear that government’s role as a regulator is compromised by the power that large companies have on the government institutions and the individual politicians. It is even more worrying when the government protects the interests of big companies such as was the case with the bailout following the Great Recession. This is why Katznelson, Kesselman, & Draper (2013) assertion that “Watchdogs for the public had become guard dogs for industry” rings very true. The watchdogs (the government), which are supposed to safeguard the public interests are instead serving as guard dogs (protectors) of the interests of big companies.
Question 3: Poverty Programs
It is easy to focus on the negatives, but the United States has done better in alleviating poverty and inequality with the War on Poverty. President Johnson’s declaration of the war on poverty in order to create a great society helped reduce the incidence of poverty in the 1960s, alongside infant mortality and bad housing. In 1960, upwards of 40 million people or 19% of the US population were thought by the government as living in poverty, but by the end of 1969, the number had been almost halved to 20 million (Thomas, 1995; Katznelson, Kesselman, & Draper, 2013). Infant mortality among the poorest people declined, compared to almost a decade before when the rate had remained constant or increased, largely because of the government’s expansion of nutritional and medical programs. The health of the poor was boosted with the implementation of both Medicare and Medicaid, especially since many poor people lacked a decent access to health care in the decades that preceded the war on poverty. By the close of the year 1971, the rate of poverty in the United States had fallen to just 12% from 19% at the beginning of the war on poverty. Successive administrations have implemented similar measures that have been invariably successful.
The assertions by Katznelson, Kesselman, & Draper (2013) and Thomas (1995) are backed by a 2014 progress report on the performance of the war on poverty by the Council of Economic Advisers. According to the report, the percent of the population living in poverty since 1967 has declined from 25.% to just 16% in the year 2012. These new figures are drawn from historical estimates of the Supplementary Census Bureau Poverty Measure with today’s poverty thresholds as a basis. The measure is thought to be more accurate in estimating poverty because it excludes the refundable tax benefits and credits such as nutrition assistance.
Personally, I believe that while the decision to work, have and raise children in wedlock, remain in marriages or even have relationships is not made because of financial circumstances alone. People, even poor people, would love to raise children within wedlock and raise happy families despite the difficult circumstances. It is possible that well-intentioned welfare programs have contributed to increasing social problems and dependency, but if this is the case, it should be very limited. With statistics showing that 12% of the population was living in poverty by the end of 1979, at a time when unemployment in the country was much lower, I do not believe that it is true that welfare caused unemployment. Of course, there is economic and other evidence to show that welfare programs and higher minimum wages increase the likelihood of people staying without gainful employment and instead relying on the government. However, I believe that the vast majority of poor Americans are just as ambitious and enterprising as wealthy Americans and that many have taken advantage of the welfare programs to better their lives.
The increasingly population of people depending on the welfare programs, especially with the aging of the baby boomer generation, the amount of resources required to maintain these programs is considerable (Katznelson, Kesselman, & Draper, 2013; Gilens, 1999). This is a challenge, compared to the period prior to the 1960s. However, I believe the greatest pressure facing the welfare state is the growing public disapproval, fuelled by perceptions that the recipients are both undeserving and lazy. In the period prior to 1964, the public perceptions of the poor were sympathetic, with poverty affecting both whites and blacks in equal measure. However, between 1969 and 1992, blacks comprised 57% of the poor population at least as portrayed by the media and the public. The changing perceptions have resulted in opposition to the welfare state and thus the willingness of successive governments to expand spending.
References
Congressional Budget Office. (2013). The Effects of a Minimum-Wage Increase on Employment and Family Income . Washingtonm DC. Retrieved from http://www.cbo.gov/sites/default/files/44995-MinimumWage.pdf: Congressional Budget Office.
Gilens, M. (1999). Why Americans Hate Welfare. Chicago: University of Chicago Press.
Harvey, D. (2007). A Brief History of Neoliberalism. New York: Oxford University Press .
Karnitschnig, M., Solomon, D., Pleven, L., & Hilserenth, J. (2008, 16 Aug). U.S. to Take Over AIG in $85 Billion Bailout; Central Banks Inject Cash as Credit Dries Up. Retrieved Dec 17, 2014, from http://www.wsj.com/articles/SB122156561931242905
Katznelson, I., Kesselman, M., & Draper, A. (2013). The Politics of Power: A Critical Introduction to American Government. New York: W W Norton & Company Incorporated.
Kocieniewski, D. (2011, May 2). U.S. Business Has High Tax Rates but Pays Less. Retrieved Dec 17, 2014, from http://www.nytimes.com/2011/05/03/business/economy/03rates.html
Lipton, E., Williams, B., & Confessore, N. (2014, 9 6). Foreign Powers Buy Influence at Think Tanks. Retrieved Dec 17, 2014, from http://www.nytimes.com/2014/09/07/us/politics/foreign-powers-buy-influence-at-think-tanks.html?_r=0
The Council of Economic Advisers. (2014). The War on Poverty 50 Years Later: A Progress Report. Washington, DC: The Executive Office of the President of the US.
Thomas, G. B. (1995). Contemplating Marriage: Reader. Boston: Rowman & Littlefield.
