Domestic Policy: Categorizing Public Policy

An image of a crowd of people holding signs and flags. One sign reads

Minnesota Tea Party members protest in 2011, demanding repeal of the recently enacted Patient Protection and Affordable Care Act. Protests against expanding the federal government’s role in the economy. (Credit: modification of work by “Fibonacci Blue”/Flickr)

Learning Objectives: Domestic Policy Chapter

  • Describe the different types of public policy categories.
  • Compare the different costs and benefits of public policy types and the way they transfer, allocate, or regulate goods and services within a society.
  • Identify the key domestic arenas of public policy.
  • Describe the major social safety net programs.
  • List the key agencies responsible for promoting and regulating U.S. business and industry.

Governments rarely want to keep their policies a secret. Elected officials want to be able to take credit for the things they have done to help their constituents, and their opponents are all too willing to cast blame when policy initiatives fail. We can therefore think of policy as the formal expression of what elected or appointed officials are trying to accomplish.

An image of a group of 12 people standing around Barack Obama, who is seated at a desk and signing a piece of paper.

President Obama signs a 2009 executive order to accelerate the federal government’s recruitment and hiring of returning veterans. (Credit: The White House; OpenStax included image)

The idea of public policy is by its very nature a politically contentious one. Among the differences between American liberals and conservatives are the policy preferences prevalent in each group. Modern liberals tend to feel very comfortable with the idea of the government expansion of the public sector, believing that this expansion will lead to outcomes more equitable and fair for all members of society. Conservatives, on the other hand, often find government and expansion of the public sector onerous and overreaching. They feel society would function more efficiently if oversight of most “public sector” matters were returned to the private sector. Before digging too deeply into a discussion of the current nature of public policy in the United States, let us look first at the range of public policy categories.

Classic Types of Policy

Public policy is the broad strategy government uses to do its job. It is the relatively stable set of purposeful governmental behaviors that address matters of concern to some part of society. Public policy, then, ultimately boils down to determining the strategy for the distribution and allocation of public sector goods and services. While the specifics of policy often depend on the circumstances, two broad questions all policymakers must consider are a) who pays the costs of creating and maintaining the goods, and b) who receives the benefits of the goods? When private sector goods are bought and sold in a market place, the costs and benefits go to the participants in the transaction. Your landlord benefits from receipt of the rent you pay, and you benefit by having a place to live. But non-private goods like roads, waterways, and national parks are controlled and regulated by someone other than the owners, allowing policymakers to make decisions about who pays and who benefits.

In 1964, Theodore Lowi argued that it was possible to categorize policy based upon the degree to which costs and benefits were concentrated on the few or diffused across the many.[1] One policy category, known as distributive policy, tends to collect tax dollars or resources from many but concentrates direct benefits on relatively few.[2] Lowi described a distributive government policy as a policy that collects resources broadly through general taxation paid for by many in a society but confers direct benefits of public sector goods or services on a much smaller targeted set of individuals.[3]

The preamble to the U.S. Constitution states, as one of its stated purposes, promotion of the general welfare which implies some level (although undefined) of distributive policy to support the economic prosperity of the nation. Thus, highways are often developed through distributive policy. While only those initially using the roads may directly benefit from this public cost, the “general welfare” and prosperity of the nation is still enhanced by a better overall transportation system.[4] Distributive policy is a more general societal benefit to having individuals obtain personal benefits such as higher education that offer long-term benefits, but the upfront cost may be too high for the average citizen.

One example of the way distributive policy works is the story of the Transcontinental Railroad. In the 1860s, the U.S. government began to recognize the value of building a robust railroad system to move passengers and freight around the country. A particular goal was connecting California and the other western territories acquired during the 1840s war with Mexico to the rest of the country. The problem was that constructing a nationwide railroad system was a costly and risky proposition. To build and support continuous rail lines, private investors would need to gain access to tens of thousands of miles of land, some of which might be owned by private citizens. The solution was to charter two private corporations—the Central Pacific and Union Pacific Railroads—and provide them with resources and land grants to facilitate the construction of the railroads.[5] Through these grants, publicly owned land was distributed to private citizens, who could then use it for their own gain. However, a broader public gain was simultaneously being provided in the form of a nationwide transportation network.

An image of the construction of a bridge for a railroad.

In an example of distributive policy, the Union Pacific Railroad was given land and resources to help build a national railroad system. Here, its workers construct the Devil’s Gate Bridge in Utah in 1869. (Credit: Library of Congress; OpenStax included image)

The same process operates in the agricultural sector, where various federal programs help farmers and food producers through price supports and crop insurance, among other forms of assistance. These programs help individual farmers and agriculture companies stay afloat and realize consistent profits. They also achieve the broader goal of providing plenty of sustenance for the people of the United States, so that few of us have to “live off the land.”

The Hoover Dam: The Federal Effort to Domesticate the Colorado River

As westward expansion led to development of the American Southwest, settlers increasingly realized that they needed a way to control the frequent floods and droughts that made agriculture difficult in the region. As early as 1890, land speculators had tried diverting the Colorado River for this purpose, but it wasn’t until 1922 that the U.S. Bureau of Reclamation (then called the Reclamation Service) chose the Black Canyon as a good location for a dam to divert the river. Since it would affect seven states (as well as Mexico), the federal government took the lead on the project, which eventually cost $49 million and more than one hundred lives. The dam faced significant opposition from members of other states, who felt its massive price tag (almost $670 million in today’s dollars[6]) benefited only a small group, not the whole nation. However, in 1928, Senator Hiram Johnson and Representative Phil Swing, both Republicans from California, won the day. Congress passed the Boulder Canyon Project Act, authorizing the construction of one of the most ambitious engineering feats in U.S. history. The Hoover Dam, completed in 1935, served the dual purposed of generating hydroelectric power and irrigating two million acres of land from the resulting reservoir (Lake Mead).

An image of workers constructing the Hoover Dam.

Workers construct the Hoover Dam, a distributive policy project, in Nevada in 1932. (Credit: US Congress)

link to learning

Visit this site to see how the U.S. Bureau of Reclamation (USBR) presented the construction of the Hoover Dam. How would you describe the bureau’s perspective?

American Rivers is an advocacy group whose goal is to protect and restore rivers, including the Colorado River. How does this group’s view of the Hoover Dam differ from that of the USBR?

Other examples of distributive policy support citizens’ efforts to achieve “the American Dream.” American society recognizes the benefits of having citizens who are financially invested in the country’s future. Among the best ways to encourage this investment are to ensure that citizens are highly educated and have the ability to acquire high-cost private goods such as homes and businesses. However, very few people have the savings necessary to pay upfront for a college education, a first home purchase, or the start-up costs of a business. To help out, the government has created a range of incentives that everyone in the country pays for through taxes but that directly benefit only the recipients. Examples include grants (such as Pell grants), tax credits and deductions, and subsidized or federally guaranteed loans. Each of these programs aims to achieve a policy outcome. Pell grants exist to help students graduate from college, whereas Federal Housing Administration mortgage loans lead to home ownership.

While distributive policy, according to Lowi, has diffuse costs and concentrated benefits, regulatory policy features the opposite arrangement, with concentrated costs and diffuse benefits.[7] A relatively small number of groups or individuals bear the costs of regulatory policy, but its benefits are expected to be distributed broadly across society. Regulatory government policies are implemented through rules that add costs to the operations of businesses or organizations by mandating certain practices in their operations that are intended to protect the public.

As you might imagine, regulatory policy is most effective for controlling or protecting public or common resources. Among the best-known examples are policies designed to protect public health and safety, and the environment. These regulatory policies prevent manufacturers or businesses from maximizing their profits by excessively polluting the air or water, selling products they know to be harmful, or compromising the health of their employees during production.

In the United States, nationwide calls for a more robust regulatory policy first grew loud around the turn of the twentieth century and the dawn of the Industrial Age. Investigative journalists—called muckrakers by politicians and business leaders who were the focus of their investigations—began to expose many of the ways in which manufacturers were abusing the public trust. Although various forms of corruption topped the list of abuses, among the most famous muckraker exposés was The Jungle, a 1906 novel by Upton Sinclair that focused on unsanitary working conditions and unsavory business practices in the meat-packing industry.[8] This work and others like it helped to spur the passage of the Pure Food and Drug Act (1906) and ultimately led to the creation of government agencies such as the U.S. Food and Drug Administration (FDA).[9] The nation’s experiences during the depression of 1896 and the Great Depression of the 1930s also led to more robust regulatory policies designed to improve the transparency of financial markets and prevent monopolies from forming.

A final type of policy is redistributive policy, so named because it redistributes resources in society from one group to another.[10] That is, according to Lowi, the costs are concentrated and so are the benefits, but different groups bear the costs and enjoy the benefits.[11] Redistribution policies have costs paid by taxes born by a relatively smaller number of more wealthy individuals but the benefits are provided only to lower-income individuals and families.

Most redistributive policies are intended to have a sort of “Robin Hood” effect; their goal is to transfer income and wealth from one group to another such that everyone enjoys at least a minimal standard of living. Typically, the wealthy and middle class pay into the federal tax base, which then funds need-based programs that support low-income individuals and families. A few examples of redistributive policies are Head Start (education), Medicaid (health care), Temporary Assistance for Needy Families (TANF, income support), and food programs like the Supplementary Nutritional Aid Program (SNAP).

Public Sector Goods and Services

In practice, public policy consists of specific programs that provide resources to members of society, create regulations that protect U.S. citizens, and attempt to equitably fund the government. We can broadly categorize most policies based on their goals or the sector of society they affect, although many, such as food stamps, serve multiple purposes. Implementing these policies costs hundreds of billions of dollars each year, and understanding the goals of this spending and where the money goes is of vital importance to citizens and students of politics alike.

Social Welfare Policy

The U.S. government began developing a social welfare policy during the Great Depression of the 1930s. By the 1960s, social welfare had become a major function of the federal government—one to which most public policy funds are devoted—and had developed to serve several overlapping functions. First, social welfare policy is designed to ensure some level of equity in a democratic political system based on competitive, free-market economics. During the Great Depression, many politicians came to fear that the high unemployment and low-income levels plaguing society could threaten the stability of democracy, as was happening in European countries like Germany and Italy. The assumption in this thinking is that democratic systems work best when poverty is minimized. In societies operating in survival mode, in contrast, people tend to focus more on short-term problem-solving than on long-term planning. Second, social welfare policy creates an automatic stimulus for a society by building a safety net that can catch members of society who are suffering economic hardship through no fault of their own. For an individual family, this safety net makes the difference between eating and starving; for an entire economy, it could prevent an economic recession from sliding into a broader and more damaging depression.

One of the oldest and largest pieces of social welfare policy is Social Security, which cost the United States about $845 billion in 2014 alone.[12] These costs are offset by a 12.4 percent payroll tax on all wages up to $118,500; employers and workers who are not self-employed split the bill for each worker, whereas the self-employed pay their entire share.[13]

An image of a few people standing in an automotive plant next to some machinery.

In 1930, when this Ford automotive plant opened in Long Beach, California, American workers had few economic protections to rely on if they were injured or could not maintain such physical activity as they aged. (Credit: OpenStax included image)

Social Security addresses concerns with three important tools. First and best known is the retirement benefit. After completing a minimum number of years of work, American workers may claim a form of pension upon reaching retirement age. It is often called an entitlement program since it guarantees benefits to a particular group, and virtually everyone will eventually qualify for the plan given the relatively low requirements for enrollment. The amount of money a worker receives is based loosely on his or her lifetime earnings. Full retirement age was originally set at sixty-five, although changes in legislation have increased it to sixty-seven for workers born after 1959.[14] A valuable added benefit is that, under certain circumstances, this income may also be claimed by the survivors of qualifying workers, such as spouses and minor children, even if they themselves did not have a wage income.

A second Social Security benefit is a disability payout, which the government distributes to workers who become unable to work due to physical or mental disability. To qualify, workers must demonstrate that the injury or incapacitation will last at least twelve months. A third and final benefit is Supplemental Security Income, which provides supplemental income to adults or children with considerable disability or to the elderly who fall below an income threshold.

While Social Security was designed to provide cash payments to sustain the aged and disabled, Medicare and Medicaid were intended to ensure that vulnerable populations have access to health care. Medicare, like Social Security, is an entitlement program funded through payroll taxes. Its purpose is to make sure that senior citizens and retirees have access to low-cost health care they might not otherwise have, because most U.S. citizens get their health insurance through their employers. Medicare provides three major forms of coverage: a guaranteed insurance benefit that helps cover major hospitalization, fee-based supplemental coverage that retirees can use to lower costs for doctor visits and other health expenses, and a prescription drug benefit. Medicare faces many of the same long-term challenges as Social Security, due to the same demographic shifts.[15]

Medicaid is a formula-based, health insurance program, which means beneficiaries must demonstrate they fall within a particular income category. Individuals in the Medicaid program receive a fairly comprehensive set of health benefits, although access to health care may be limited because fewer providers accept payments from the program (it pays them less for services than does Medicare). Medicaid differs dramatically from Medicare in that it is partially funded by states, many of which have reduced access to the program by setting the income threshold so low that few people qualify. The ACA (2010) sought to change that by providing more federal money to the states if they agreed to raise minimum income requirements. Many states have refused, which has helped to keep the overall costs of Medicaid lower, even though it has also left many people without health coverage they might receive if they lived elsewhere. Total costs for Medicaid in 2014 were about $492 billion, about $305 billion of which was paid by the federal government.[16]

Collectively, Social Security, Medicare, and Medicaid make up the lion’s share of total federal government spending, almost 50 percent in 2014 and more than 50 percent in 2015. Several other smaller programs also provide income support to families. Most of these are formula-based, or means-tested, requiring citizens to meet certain maximum income requirements in order to qualify. A few examples are TANF, SNAP (also called food stamps), the unemployment insurance program, and various housing assistance programs. Collectively, these programs add up to a little over $480 billion.

An image of a rocket taking off.

NASA launches the space shuttle Discovery from the Kennedy Space Center in 2007. Should the private sector fund space exploration programs rather than the government? (Credit: NASA)

Much of the nation’s science and technology policy benefits its military, for instance, in the form of research and development funding for a range of defense projects. The federal government still promotes research for civilian uses, mostly through the National Science Foundation, the National Institutes of Health, the National Aeronautics and Space Administration (NASA), and the National Oceanic and Atmospheric Administration. Recent debate over these agencies has focused on whether government funding is necessary or if private entities would be better suited. For example, although NASA continues to develop a replacement for the now-defunct U.S. space shuttle program, much of its workload is currently being performed by private companies working to develop their own space launch, resupply, and tourism programs.

The problem of trying to direct and fund the education of a modern U.S. workforce is familiar to many students of American government. Historically, education has largely been the job of the states. While they have provided a very robust K–12 public education system, the national government has never moved to create an equivalent system of national higher education academies or universities as many other countries have done. As the need to keep the nation competitive with others became more pressing, however, the U.S. government did step in to direct its education dollars toward creating greater equity and ease of access to the existing public and private systems.

The overwhelming portion of the government’s education money is spent on student loans, grants, and work-study programs. Resources are set aside to cover job-retraining programs for individuals who lack private-sector skills or who need to be retrained to meet changes in the economy’s demands for the labor force. National policy toward elementary and secondary education programs has typically focused on increasing resources available to school districts for nontraditional programs (such as preschool and special needs), or helping poorer schools stay competitive with wealthier institutions.

Business Stimulus and Regulation

A final key aspect of domestic policy is the growth and regulation of business. The size and strength of the economy is very important to politicians whose jobs depend on citizens’ believing in their own future prosperity. At the same time, people in the United States want to live in a world where they feel safe from unfair or environmentally damaging business practices. These desires have forced the government to perform a delicate balancing act between programs that help grow the economy by providing benefits to the business sector and those that protect consumers, often by curtailing or regulating the business sector.

Two of the largest recipients of government aid to business are agriculture and energy. Both are multi-billion dollar industries concentrated in rural and/or electorally influential states. Because voters are affected by the health of these sectors every time they pay their grocery or utility bill, the U.S. government has chosen to provide significant agriculture and energy subsidies to cover the risks inherent in the unpredictability of the weather and oil exploration. Government subsidies also protect these industries’ profitability. These two purposes have even overlapped in the government’s controversial decision to subsidize the production of ethanol, a fuel source similar to gasoline but generated from corn.

When it comes to regulation, the federal government has created several agencies responsible for providing for everything from worker safety (OSHA, the Occupational Safety and Health Administration), to food safety (FDA), to consumer protection, where the recently created Bureau of Consumer Protection ensures that businesses do not mislead consumers with deceptive or manipulative practices. Another prominent federal agency, the EPA, is charged with ensuring that businesses do not excessively pollute the nation’s air or waterways. A complex array of additional regulatory agencies governs specific industries such as banking and finance, which are detailed later in this chapter.

Questions to Consider

  1. What is public policy?

  2. Name a program the national government currently provides?

  3. What are some of the challenges to getting a new public policy considered and passed as law?

  4. Of the types of public policy categories discussed in this section, which do you feel is the least controversial and which is the most controversial? Why?

  5. Which public policies are most important and why?

  6. What societal ills are social welfare programs designed to address?

  7. What is the difference between an entitlement program and a means-tested program?

Terms to Remember

distributive policy–a policy that collect resources broadly through general taxation paid for by many in society but confers direct benefits of a public sector good or service on a relatively few or much smaller targeted set of individuals

entitlement–a program that guarantees benefits to members of a specific group or segment of the population from contributions by those receiving the entitlement benefit or from US taxpayers who received a benefit from the recipients’ service or contribution

means-tested–a program providing a benefit to low-income individuals from US taxpayers

Medicaid–a health insurance program for low-income citizens from US taxpayers

Medicare–an entitlement health insurance program for older people and retirees who no longer get health insurance through their work

public policy–the broad strategy government uses to do its job; the relatively stable set of purposeful governmental behaviors that address matters of concern to some part of society

redistributive policy–a policy in which costs are paid for by taxes from a relatively small number of generally more affluent individuals, but benefits of the policies are expected to be provided to a different group in society that is typically made up of lower income individuals and families

regulatory policy–a policy generally implemented through administrative rules that may add costs to the operation of companies and organizations by mandating or forbidding certain practices in a way that are intended to protect the public

safety net–a way to provide for members of society experiencing economic hardship

Social Security–a social welfare policy for people who no longer receive an income from employment


  1. "American Business, Public Policy, Case-Studies, and Political Theory" (1964), World Politics 16(4):677-715; In this journal article, which reviews a book by Raymond A. Bauer, Ithiel de Sola Pool, and Lewis A. Dexteer, Lowi lays out his classic typology of public policy in the U.S.; distribution, regulation, and redistribution.
  2. "American Business, Public Policy, Case-Studies, and Political Theory" (1964), World Politics 16(4):677-715; In this journal article, which reviews a book by Raymond A. Bauer, Ithiel de Sola Pool, and Lewis A. Dexteer, Lowi lays out his classic typology of public policy in the U.S.; distribution, regulation, and redistribution.
  3. Theodore Lowi in "American Business, Public Policy, Case-Studies, and Political Theory" (1964), World Politics 16(4):677-715
  4. United States Constitution, National Archives and Records Administration
  5. http://www.history.com/topics/inventions/transcontinental-railroad (March 1, 2016).
  6. http://www.dollartimes.com/inflation/inflation.php?amount=49&year=1919 (March 1, 2016).
  7. Theodore Lowi in "American Business, Public Policy, Case-Studies, and Political Theory" (1964), World Politics 16(4):677-715
  8. Upton Sinclair. 1906. The Jungle. New York: Grosset and Dunlap.
  9. http://www.fda.gov/AboutFDA/WhatWeDo/History/ (March 1, 2016).
  10. Theodore Lowi in "American Business, Public Policy, Case-Studies, and Political Theory" (1964), World Politics 16(4):677-715
  11. Theodore Lowi in "American Business, Public Policy, Case-Studies, and Political Theory" (1964), World Politics 16(4):677-715
  12. "An Update to the Budget and Economic Outlook: 2014 to 2024," 27 August 2014. https://www.cbo.gov/publication/45653 (March 1, 2016).
  13. "Update 2016," https://www.ssa.gov/pubs/EN-05-10003.pdf (March 1, 2016).
  14. https://www.ssa.gov/planners/retire/ageincrease.html (March 1, 2016).
  15. "The Facts on Medicare Spending and Financing," http://kff.org/medicare/fact-sheet/medicare-spending-and-financing-fact-sheet/ (March 1, 2016); "National Health Expenditure Fact Sheet," https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/nationalhealthexpenddata/nhe-fact-sheet.html (March 1, 2016).
  16. "National Health Expenditure Fact Sheet," https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/nationalhealthexpenddata/nhe-fact-sheet.html (March 1, 2016).