Text 1. Public Policy and the Budget
Date: 2015-10-07; view: 320.
UNIT 5: MAKING THE BUDGET. TAKING PART IN “NEW ECONOMY'
DISCUSSION: Discussing tax cuts
Possible characters:
1. Independent analysts.
2. Keynesians.
3. Followers of laissez-faire economics.
4. Average taxpayers.
5. Representatives of large businesses.
6. Different political parties' leaders.
7.Governors of different regions.
To most people — college students included—the national budget is B-O-R-I-N-G. To national politicians, it is an exciting script for high drama. The numbers, categories, and percentages that numb normal minds cause politicians nostrils to flare and their hearts to pound. The budget is a political battlefield, on which politicians and the programs they support wage war. Today, the president prepares the budget and Congress approves it. This was not always the case. Before 1921, Congress prepared the budget under its constitutional authority to raise taxes and appropriate funds. The budget was formed piecemeal by enacting a series of laws that originated in the many committees involved in the highly decentralized process of raising revenue, authorizing expenditures, and appropriating funds. No one was responsible for the "big picture"—the budget as a whole. The president's role was essentially limited to approving revenue and appropriations bills, just as he approved other pieces of legislation. In fact, executive agencies even submitted their budgetary requests directly to Congress, not to the president.
Congressional budgeting (such as it was) worked well enough for a nation of farmers, but not for an industrialized nation with a growing population and a more active government. Soon after World War I, Congress realized that the budget-making process needed to be centralized. With the Budgeting and Accounting Act of 1921, it thrust the responsibility for preparing the budget onto the president. The act established the Bureau of the Budget to help the president write "his" budget, which had to be submitted to Congress each January. Congress retained its constitutional authority to raise and spend funds, but now Congress would begin its work with the president's budget as its starting point. And all executive agencies' budget requests had to be funneled through the Bureau of the Budget (which became the Office of Management and Budget in 1970) for review; those consistent with the president's overall economic and legislative program were incorporated into the president's budget.
The national budget is complex. But its basic elements are not beyond understanding. We begin with some definitions. The Budget of the United States Government is the annual financial plan that the president is required to submit to Congress at the start of each year. It applies to the next fiscal year(FY), the period the government uses for accounting purposes. Currently, the fiscal year runs from October 1 to September 30. The budget is named for the year in which it ends. So, the FY 1992 budget applies to the twelve months from October 1, 1991, to September 30, 1992.
Broadly, the budget defines budget authority(how much government agencies are authorized to spend for programs), budget outlays,or expenditures (how much they are expected to spend), and receipts(how much is expected in taxes and other revenues). President Bush's FY 1992 budget contained authority for expenditures of $1,578 billion, but it provided for spending (outlays) of "only" $1,446 billion. The budget anticipated receipts of $1,165 billion, leaving a deficit of $281 billion—the difference between receipts and outlays.
Bush's FY 1992 budget was over fifteen hundred pages long and weighed more than five pounds, including appendixes. (The budget document contains more than numbers. It also explains individual spending programs in terms of national needs and agency objectives, and it analyzes proposed taxes and other receipts.) Although its publication was anxiously awaited by reporters, lobbyists, and political analysts eager to learn the president's plan for government spending in the coming year, the drama was lessened in 1991 because of the Budget Enforcement Act passed in the closing days of the 1990 session. This law grew out of a budget agreement between the president and Congress following months of negotiation over how to deal with the budget deficit. Because the agreement capped the amount of money that could be spent for domestic, military, and foreign assistance programs, the broad outlines of government spending were determined in advance of the president's budget. The law also made some significant changes in dealing with future deficits and in the budgeting process itself.
The budget that the president submits to Congress each winter is the end product of a process that begins the previous spring under the supervision of the Office of Management and Budget (OMB).OMB is located within the Executive Office of the President and is headed by a director who is appointed by the president with the approval of the Senate. The OMB, with a staff of over five hundred, is the most powerful domestic agency in the bureaucracy, and its director, who sits in the president's Cabinet, is one of the most powerful figures in government.
The OMB initiates the budget process each spring by meeting with the president to discuss the economic situation and his budgetary priorities. It then sends broad economic guidelines to every government agency and requests their initial projections of funds needed for the next fiscal year. The OMB assembles this information and makes recommendations to the president, who settles on more precise guidelines. By the summer, the agencies are asked to prepare budgets based on the new guidelines. By the fall, they submit their formal budgets to the OMB, where budget analysts scrutinize agency requests for both costs and consistency with the president's legislative program. A lot of politicking goes on at this stage, as agency heads try to go around the OMB to plead for their pet projects with presidential advisers and perhaps even the president himself. Political negotiations may extend into the early winter—often to the last possible moment before the budget goes to the printer.
The voluminous document is carefully printed and neatly bound. It looks very much like a finished product, but it is far from final. In giving the president the responsibility for preparing the budget, Congress has provided itself with a starting point for its own work.
(from “The Challenge of Democracy”)
Tasks:
do the phonetic reading and written literary translation of
a) the first passage of the text;
b) the fifth passage of the text;
put 10 questions to the text;
give the summary of the text;
retell the text as if you were:
1) a college student studying the national budget;
2) a professor teaching the national budget;
3) a Congressman unsatisfied with centralized budgeting;
4) a president's adviser of budget making.
Text 2. Don't say "new economy"
As reversals in market psychology go, this ranks among the most spectacular in decades. Only yesterday, or so it seems, Wall Street equity analysts almost unanimously acclaimed a new economic paradigm. Out with those old equity-valuation models, out with fusty concerns about earnings (actual or predicted), out with the business cycle; in with network effects, birth rates and global scale. Forget, ugh, prudence: caution is the new recklessness. Nowadays, as one representative member of the breed then put it, the only danger is to be out of the market.
Well, for that shrewd advice (as NASDAQ[2] tottered at around 5,000), many thanks. For all those "buy", "hold" and "accumulate" recommendations on stocks that cost $100 last year, and now cost $1.50, thanks a lot.
Demonstrating an agility as impressive as these powers of foresight, analysts are now explaining why a tech-stock "adjustment" had been overdue. Apparently the problem is that many of these hi-tech companies have no earnings. Why didn't we think of that? Also, some careless investors—if you can believe this— had supposed that the business cycle was a thing of the past. No wonder the market is volatile, with so much ignorant money around! Still, it is odd how many of those carefully researched "buy" and "hold" recommendations turned to "sell" once prices collapsed—whereas, if the scoundrels who produced them entertained the smallest conviction that their analysis of underlying determinants had ever been correct, recent price falls would have bumped everything from "hold" and above to "insane bargain of a lifetime".
The surge of pessimism about the American economy in general, and the prospects for hi-tech companies in particular, is bad news not just for the gamblers who got burned on NASDAQ—they deserve no sympathy—but for many innocents as well. Recurring spasms of gloom and euphoria tend to be self-fulfilling. America's record-breaking economic expansion has been fuelled partly by the effect of soaring equity prices on wealth: people have felt richer, and have spent furiously. Falling equity prices will work the same way, except in reverse. If Wall Street, moving abruptly from joy to remorse, convinces itself over the next few months that a hard landing is coming, it stands a fair chance of getting its way.
Alan Greenspan appears to agree, and took preventive measures on January 3rd. So far, notwithstanding weaker manufacturing, as reported the day before, there has been no clear sign from the real economy that the slowdown will in fact become a recession. But suppose it did. Would that bury the new economic paradigm?
The new-economy claim, sensibly stated, is a theory about the medium and longer term, not about fluctuations in the business cycle. Long-term prospects in America and the rest of the world are driven by productivity. As NASDAQ soared, so did the belief that the trend of productivity growth has shifted permanently higher: over the next decade or two, many believed, productivity might grow more than twice as fast as it did in the 25 years to the mid-1990s. If new technologies really could boost growth in productivity so much, they would go far to justify the earlier strength of Wall Street as a whole— though most tech-stock valuations were beyond the pale even on this bold assumption. Then along came the tech-stock crunch. Somehow, this shifted thinking on the long-term question. Many now appear to believe that the "new economy" was a myth all along.
This pessimistic extreme is as foolish as its optimistic predecessor. A recession, if it happens, will not expose the new economy as a myth. It will show only what should have been obvious anyway—that the cycle has not been abolished. Similarly, slowing investment in hi-tech capital will not show that the new economy is pure hype. Such a decline is again likely for purely cyclical reasons. The idea of a new era does not depend on adding to the stock of hi-tech capital at the recent phenomenal rate. It depends on continuing growth in the output produced from any given amount of labor and capital. This kind of productivity—with capital and labor, in effect, held constant—is called total factor productivity or multi-factor productivity. It is the true key to a long-term quickening of economic growth.
The new technologies of the past five years may well have boosted growth in multi-factor productivity. Computers, the Internet and modern telecommunications taken together change working methods dramatically, and in ways that generate continuing opportunities for growth. If the new economy proves real, it will be because of this qualitative shift in the potency of capital.
What then does the tech-stock collapse reveal about the long-term quality of recent American investment? Nothing. On the other hand, slowing growth—or a recession, if it happens—will indeed shed light on the issue, albeit in a rather subtle way. Recessions, as noted, happen in any era. But a slowdown will be revealing nonetheless, by making it easier to subtract the cyclical part of productivity growth from the underlying part. This has been difficult so far, bedeviling attempts to measure the all-important trend in multi-factor productivity.
It is certainly conceivable, and not all that unlikely, that slower growth this year, combined with lower hi-tech investment and lower earnings for producers of hi-tech capital, will coincide with further improvements in multi-factor productivity. Those improvements, if they materialize and can be measured, will almost certainly be too small to impress new-economy zealots who foresaw a doubling or more of long-term growth. But in the real world, a much smaller improvement than that would still deserve to be recognized, regardless of the slowdown, recession or no recession, as a breakthrough.
(from “The Economist”, January 6th)
Tasks:
put 10 questions to the article;
comment upon the article.
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