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The Policy Process and Budgeting

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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 Policy The decisions, rules, and actions of the government that are designed to achieve certain goals Policy constrained by Political forces Budget

4 Policy Implementation
The Policy Process Policy Deliberation Policy Enactment Policy Implementation Agenda Setting Policy Outcomes Policy Output

5 Policy Implementation
The Policy Process Policy Deliberation Policy Enactment Policy Implementation Agenda Setting Policy Outcomes Policy Output

6 Policy Implementation
The Policy Process Policy Deliberation Policy Enactment Policy Implementation Agenda Setting Policy Outcomes Policy Output

7 Policy Implementation
The Policy Process Policy Deliberation Policy Enactment Policy Implementation Agenda Setting Policy Outcomes Policy Output

8 Policy Implementation
The Policy Process Policy Deliberation Policy Enactment Policy Implementation Agenda Setting Policy Outcomes Policy Output

9 Policy Implementation
The Policy Process Policy Deliberation Policy Enactment Policy Implementation Agenda Setting Policy Outcomes Policy Output

10 Policy Implementation
The Policy Process Policy Deliberation Policy Enactment Policy Implementation Agenda Setting Policy Outcomes Policy Output

11 Policy Implementation
The Policy Process Policy Deliberation Policy Enactment Policy Implementation Agenda Setting Policy Outcomes Policy Output

12 Budget and Economic Policy
Policy process constrained by budget Budget constrained by economic policy

13 Setting the Budget Revenue

14 Revenue Sources (FY2004)

15 Setting the Budget Revenue Expenditures Direct spending
Discretionary spending

16 Government Expenditures (FY2004)

17 Setting the Budget Revenue Expenditures Revenue – Expenditures
Direct spending Discretionary spending Revenue – Expenditures Surplus Deficit

18 Budget Surplus/Deficit

19 National Debt

20 The Federal Budget Process
President’s Budget Request Congressional Budget Resolution

21 President’s Budget Request
Federal agencies submit requests to Office of Management and Budget (OMB) 18 month lead time Summer of 2005, agencies submitting requests for budget that will go into effect October 1, 2006 OMB Proposed budget to Congress Due by first Monday in February

22 Congress’s Job Congressional Budget Office report
CBO makes economic forecast to predict revenues February 15 Individual committees make requests to Budget Committees Mid- to late March

23 Congress’s Job House 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 needed Supposed to be done by April 15

24 Congress’s Job Appropriations Committee President’s Budget
CBO Projections Budget Committees’ Budget Resolution Appropriations Committee Committee Requests

25 Congress’s Job Appropriations Committees House and Senate
Dollars for programs Constrained by Budget Resolution President’s signature required on appropriations

26 Budget Deadline: September 30
Miss the deadline? Federal government runs out of “money” on October 1 Congress 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 pressure Many, many people involved – too many cooks?

28 Constraints on Budget Process
Political constraints (which programs are popular, etc.) Macroeconomic constraints To 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 function Define and protect property rights Maintain the peace Public expectations (post-Great Depression) Market failures Monopolies Public goods Remember – 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 works Three key theories Laissez-faire capitalism Keynesianism Monetarism

32 Laissez-faire Capitalism
Based on Adam Smith’s “invisible hand” Market will work, just leave it alone Advocates minimal government involvement Focus is on overall productivity, not inequalities Was popular pre-Great Depression Regaining popularity since 1970s

33 Keynesianism Based on work of John Maynard Keynes
Economy can be “revived” through government intervention Gross inequalities in wealth reduce demand for goods and hurt economy So goal is to make sure that the middle class and working poor have money to spend Cut income taxes on this broad segment of society Create jobs through public employment

34 Monetarism Key player: Milton Friedman
Government cannot act quickly enough to “fine-tune” economy Instead, should focus on stability in economy by controlling the money supply to banks Became popular in late 1970s Practically, emphasis is on controlling interest rates Gives 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 Capitalism Keynesianism Monetarism Primary Concern Economic Growth Economic Equality Economic Stability Govt. Role Minimal Major Moderate Govt. “Tools” None Tax rates, government spending Control money and interest rates

37 What Policies Can Govt. Use to Control Economy?
Monetary policies Fiscal policies Regulation Subsidies 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 spend Progressive v. Regressive tax schemes Progressive taxes help redistribute wealth Spend Can create jobs Affect overall health of economy 15 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 limits Child labor laws Safety and health requirements

41 Subsidies and Contracting
Get people to do things they wouldn’t otherwise do by offering benefits for the behavior Subsidies (grants of cash and goods to firms or people doing things we like) Examples: NSF grants, crop subsidies, land grants to “settlers” in 1800s Contracts (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

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