the policy process and budgeting setting priorities, funding programs
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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?
Public Policy
The decisions, rules, and actions of the government that are designed to achieve certain goals
Policy constrained by– Political forces– Budget
The Policy Process
Policy Deliberation
Policy Enactment
Policy Implementation
Agenda Setting
Policy Outcomes Policy Output
The Policy Process
Policy Deliberation
Policy Enactment
Policy Implementation
Agenda Setting
Policy Outcomes Policy Output
The Policy Process
Policy Deliberation
Policy Enactment
Policy Implementation
Agenda Setting
Policy Outcomes Policy Output
The Policy Process
Policy Deliberation
Policy Enactment
Policy Implementation
Agenda Setting
Policy Outcomes Policy Output
The Policy Process
Policy Deliberation
Policy Enactment
Policy Implementation
Agenda Setting
Policy Outcomes Policy Output
The Policy Process
Policy Deliberation
Policy Enactment
Policy Implementation
Agenda Setting
Policy Outcomes Policy Output
The Policy Process
Policy Deliberation
Policy Enactment
Policy Implementation
Agenda Setting
Policy Outcomes Policy Output
The Policy Process
Policy Deliberation
Policy Enactment
Policy Implementation
Agenda Setting
Policy Outcomes Policy Output
Budget and Economic Policy
Policy process constrained by budget Budget constrained by economic policy
Setting the Budget
Revenue Expenditures
– Direct spending– Discretionary spending
Revenue – Expenditures– Surplus– Deficit
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
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
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
Congress’s Job
President’s Budget
CBO Projections
Committee Requests
Budget Committees’ Budget Resolution
Appropriations Committee
Appropriations Committee
Appropriations Committee
Congress’s Job
Appropriations Committees– House and Senate– Dollars for programs– Constrained by Budget Resolution– President’s signature required on appropriations
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
What Do We Take Away?
Process is very long But, there is a deadline – decisions under
pressure Many, many people involved – too many
cooks?
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.
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?
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
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
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
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
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
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
What Policies Can Govt. Use to Control Economy?
Monetary policies Fiscal policies Regulation Subsidies and Contracting
Monetary Policies
Set interest rates Control banking regulations (affects how much
money banks have to “play with” and lend to consumers)
Fiscal Policies
Tax– 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
Regulation
Break up monopolies (antitrust policy) Set minimum wages and work hour limits Child labor laws Safety and health requirements
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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