Presentation on theme: "The Policy Process and Budgeting"— Presentation transcript:
1 The Policy Process and Budgeting Setting Priorities, Funding Programs
2 Overview What are the six major steps in the policy process? What are the key steps in creating a budget and who are the key actors at each step?How does the budget fit with our overall economic policy?
3 Public PolicyThe decisions, rules, and actions of the government that are designed to achieve certain goalsPolicy constrained byPolitical forcesBudget
20 The Federal Budget Process President’s Budget RequestCongressional Budget Resolution
21 President’s Budget Request Federal agencies submit requests to Office of Management and Budget (OMB)18 month lead timeSummer of 2005, agencies submitting requests for budget that will go into effect October 1, 2006OMBProposed budget to CongressDue by first Monday in February
22 Congress’s Job Congressional Budget Office report CBO makes economic forecast to predict revenuesFebruary 15Individual committees make requests to Budget CommitteesMid- to late March
23 Congress’s JobHouse and Senate Budget Committees draft “Budget Resolution”What is a “budget resolution”?How much money will govt. collect in taxes over next 5 years?How much money will govt. spend in each of 20 spending categories (“budget functions”)?President’s signature not neededSupposed to be done by April 15
25 Congress’s Job Appropriations Committees House and Senate Dollars for programsConstrained by Budget ResolutionPresident’s signature required on appropriations
26 Budget Deadline: September 30 Miss the deadline?Federal government runs out of “money” on October 1Congress must pass a “continuing resolution” to prevent the government from shutting down
27 What Do We Take Away? Process is very long But, there is a deadline – decisions under pressureMany, many people involved – too many cooks?
28 Constraints on Budget Process Political constraints (which programs are popular, etc.)Macroeconomic constraintsTo the extent that the government affects the economy, we need our budget (taxing and spending) to reflect broader economic policy.
29 Economic Policy Overview Why is government involved in the economy?To what extent should government be involved in the economy?What tools can the government use to control the economy?
30 Why Is Government Involved in the Economy? Basic government functionDefine and protect property rightsMaintain the peacePublic expectations (post-Great Depression)Market failuresMonopoliesPublic goodsRemember – government is supposed to keep us from killing each other. Part of that involves protecting our property rights, so that we have incentives to produce and so that we don’t spend all of our time protecting our cows. Protecting property rights (especially intellectual property rights) necessarily has economic consequences.Maintain peace – if economic inequalities and uncertainties grow too large, the peace is threatened – people will riot. So to maintain peace, government must have at least minimal involvement in maintaining a healthy economy and redistributing wealth.Public expectations of the roll of the government in economy grew in the wake of the great depression – FDR stepped into the breach and bolstered the economy, now we expect the government to protect the economy (and we blame politicians for the economy going sour).Market failures – basically, we expect that the basic laws of supply and demand will result in prosperity and economic growth. But sometimes the market doesn’t work like we want it too – certain conditions make it impossible for the normal competitive economy to operate efficiently.Monopolies: where only one supplier controls an entire sector – like Microsoft controlling office software or “Bell Telephone” controlling the telephone service market in the 70s.Public goods: things that we want but that the market will not produce – things like armies, roads, etc.
31 Should the Government Be Involved And, If So, How Much? Beliefs about the proper level of government involvement depend on beliefs about how the economy worksThree key theoriesLaissez-faire capitalismKeynesianismMonetarism
32 Laissez-faire Capitalism Based on Adam Smith’s “invisible hand”Market will work, just leave it aloneAdvocates minimal government involvementFocus is on overall productivity, not inequalitiesWas popular pre-Great DepressionRegaining popularity since 1970s
33 Keynesianism Based on work of John Maynard Keynes Economy can be “revived” through government interventionGross inequalities in wealth reduce demand for goods and hurt economySo goal is to make sure that the middle class and working poor have money to spendCut income taxes on this broad segment of societyCreate jobs through public employment
34 Monetarism Key player: Milton Friedman Government cannot act quickly enough to “fine-tune” economyInstead, should focus on stability in economy by controlling the money supply to banksBecame popular in late 1970sPractically, emphasis is on controlling interest ratesGives the Chair of the Federal Reserve enormous power
35 Ben Bernanke – Chair of the Federal Reserve Chair
36 Comparison of the “Big Three” Laissez-faire CapitalismKeynesianismMonetarismPrimary ConcernEconomic GrowthEconomic EqualityEconomic StabilityGovt. RoleMinimalMajorModerateGovt. “Tools”NoneTax rates, government spendingControl money and interest rates
37 What Policies Can Govt. Use to Control Economy? Monetary policiesFiscal policiesRegulationSubsidies and Contracting
38 Monetary Policies Set interest rates Control banking regulations (affects how much money banks have to “play with” and lend to consumers)
39 Fiscal Policies Tax Spend Tax rates determine how much money government has and, conversely, how much money consumers have to spendProgressive v. Regressive tax schemesProgressive taxes help redistribute wealthSpendCan create jobsAffect overall health of economy15 states tax food, though half of those tax food at a lower rate than other goods
40 Regulation Break up monopolies (antitrust policy) Set minimum wages and work hour limitsChild labor lawsSafety and health requirements
41 Subsidies and Contracting Get people to do things they wouldn’t otherwise do by offering benefits for the behaviorSubsidies (grants of cash and goods to firms or people doing things we like)Examples: NSF grants, crop subsidies, land grants to “settlers” in 1800sContracts (opportunities for firms to do business with the government – can impose conditions!)Examples: providing contracts to new industries to help them develop, requiring firms who contract w/ govt. to engage in fair employment practices