2. WHAT ARE THE KEY POLICY ANALYSIS TOOLS/MODELS/OPTIONS? Larry D. Sanders Fall 2005 Dept. of Ag Economics Oklahoma State University.

2. WHAT ARE THE KEY POLICY ANALYSIS TOOLS/MODELS/OPTIONS? Larry D. Sanders Fall 2005 Dept. of Ag Economics Oklahoma State University

2 INTRODUCTION Purpose: gain an awareness & understanding of the analytical tools used to evaluate agricultural public policy

3 INTRODUCTION Learning Objectives: 1. Be familiar with the general economic concepts related to policy analysis & the role of economics in public policy. 2. Be aware of various policy analysis tools. 3. Understand the value of alternatives/ consequences as a method for objective analysis & outline the elements of an effective methodology.

4 Ancient or Modern Views of Economics? there are two sets of interests, those of producers & those of consumers. But nothing more markedly affects the interests of both sides at once than price. Therefore, price is the great problem for society as a whole. According to the theory of ______________ (circa ________), the government should level prices by the adjustment of demand and supply, in order to guarantee the cost of the producer and satisfy the wants of the customer. Its chief aim is to destroy all monopoly so that the independent or small producer can be protected on the one side, and the consumer on the other. It prevents the middle-man from making large profits, & gives the seller & buyer full gain. It is the task of the superior man to adjust demand & supply so as to keep prices on a level.

5 ECONOMIC CONCEPTS Flow of spending Supply & Demand Changes in quantity vs changes in S & D Price mechanism & Equilibrium Fallacy of Composition Capitalization Economic Justice Consumer & Producer Surplus Market Failure (Externalities) Pareto Optimum Compensation Principle Relative Advantage (comparative & absolute) & Theory of Trade

GOVERNMENT Financial markets BanksMoney Markets Goods and services Money payments for goods and services Payments for goods and services Business taxes Land, labor, financial capital Income and other taxes Household savings Loans Depreciation Business savings BUSINESS HOUSEHOLDS Rent, wages, salaries, interest Transfers

7 Understanding the Public Policy Process Decisions are not made in a vacuum Economics not always an apparent part of solution Some interest groups & decision makers dont want to consider Economics Some economists dont want to consider Politics

ADVOCATES Problem Recognition Convergence of interest Formulation of Proposal Identification of Authorities Presentation of Proposal Expansion of Support Reduction of Opposition AUTHORITIES DECISION Reduction of Support OPPONENTS Emergence of Opposition Formulation of Counterproposal Identification of Authorities Presentation of Counterproposal Authoritative Consideration Expansion of Opposition IMPLEMENTATIONEVALUATION

9 Power Clusters Surround Issues & Sets of Common Interests AGRICULTURE ENVIRONMENT TRADE SENIORS POVERTY HEALTH CARE WEST DEFENSE

Administrative Agencies Legislative Committee Interest Groups Professionals Volunteers Attentive Public Latent Public POWER CLUSTER INFLUENTIALS

11 King- Makers Kings Actives Interested Citizens Apathetic Citizens Kings and Kingmakers Model & Power Clusters INFLUENTIALS Legislative Committees Latent Public Attentive Public Interest Groups Admin. Agencies Professionals Volunteers

12 The Revolving Door & Agency Capture in Governmentkey parts of the iron triangle Fueling the fire of their indignation is the revolving employment door at USDA, which consistently hires individuals from the ranks of trade and industry groups, putting one fox after another into a hen house getting damned short on hens. Although USDA draws from a number of power-mongering industry organizations, theres a path worn smooth between USDA and NCBA, the National Cattlemens Beef Association. Its impossible not to recognize the uncanny resemblance between the policies promoted by NCBA and those enacted by USDA. A good detective will tell you that theres no such thing as coincidence. So when USDAs decisions on controversial issues, which have rolled down the pike one after another, coincidentally mirror NCBAs press releases, and when NCBAs daily press releases routinely give rubber-stamp approval to all of USDA policy, its a case of Agency Capture so blatantly flaunted that it has to be deliberate. (continued)

13 The Revolving Door & Agency Capture in Governmentkey parts of the iron triangle (continued) The reason I print Alan Gueberts column every weekquite often moving him from an inside location to a more prominent spot on the front pageis that he pulls no punches, takes no bribes, and calls a spade a spade. Let me read a few lines of what Alan said in a column which ran in my paper last summer: You cant swing a dead cat inside USDA without hitting a former NCBA official and if NCBA wants to make its views known, do you think it has any trouble? Given the trusting friends and alumni that farm groups, meatpackers, and agri-businesses have inside USDA, its no mystery why producer-driven policy ideas like country-of-origin labeling are chewed to pieces before farmers and ranchers even taste their benefits. Thats NOT what President Abraham Lincoln had in mind when he founded USDA in 1862. At its birth, Lincoln christened USDA the peoples department. Today, a far more appropriate name would be the who-you-know department. --Linda Grosskopf, Editor, Agri-News, July 23, 2004,How Agribusiness Has Hijacked Regulatory Policy at USDA, presented to Organization for Competitive Markets annual conference, Omaha, Nebraska.

CONGRESS Develops programs Appropriates funds Oversees programs and funds Assists constituents EXECUTIVE BRANCH Evaluates proposals Prepares legislative reports, studies, and proposals Executes programs -- implementation Settles disputes INTEREST GROUPS Elects members of the Congress Identifies problems Makes proposals Interest Groups Producers Consumers Agribusiness Cooperatives Public Officials House committee THE CONGRESS Senate committee EXECUTIVE BRANCH Administrative Action Agencies USDA JUDICIAL BRANCH JUDICIAL BRANCH Interprets/refines/modifies law Settles disputes

15 The Role of Economics in Public Policy 1. Insight into sources of economic problems. 2. Stimulate ideas for developing new proposals. 3. Analyze consequences of policy objectively. Limits: Cannot determine best choice

16 ANALYTICAL TOOLS Partial Budgeting A planning procedure listing only items of receipts and expenses that are affected by a particular change in procedure or organization for an individual farm or business; example: whats the likely impact on my farm of signing up for a govt. program Welfare Analysis Goes beyond evaluating what is to evaluate likely benefits/costs of specific alternatives (may include distributional equity issues) to show who is made better/worse off; example: what are are the net benefits of a highway project, and who are the winners/losers Modeling Establishing the likely relevant and measurable factors to quantitatively evaluate a situation (real or potential), such as price effects of changing commodity policy

17 Modeling Statement of causal relations that connect alternative policies with their effects; simplified representation of some aspect of real world Functional Form: Y = f(x) P(x) = f(Qs(x), Qd(x))

18 Modeling (cont.) Conceptual/Qualitative Models: clarify thinking, identify key aspects; help communicate with others on nature of problem, suggest explanation for public policy & predict consequences; often based on theory

19 Public Policy Methodology Advocacy vs. Objectivity Alternatives & Consequences Elements: Define problem Present Policy Goals/Objectives the public will use to choose solution Methods of evaluation Alternatives Evaluation Consequences

20 Assignment/References 6 Sep: Review K ch. 2 & handouts References Huan-Chang, Chen The Economic Principles of Confucius and His School. Distributed for the Ganesha Publishing. 1911 Edition. See: http://www.press.uchicago.edu/cgi-bin/hfs.cgi/00/15410.ctl Grosskopf, L. Editor, Agri-News, July 23, 2004,How Agribusiness Has Hijacked Regulatory Policy at USDA, presented to Organization for Competitive Markets annual conference, Omaha, Nebraska. Hahn, A. various publications/presentations. Mattera, P. USDA Inc., 2004. Williams, Sue & Larry D. Sanders, various publications and programs. E.F.Schumacher in Resurgence magazine, 1968 Fortune cookie: Confucius (or Buddhist Economics) say about 500 b.c.

21 Alternate Views on Economics & Markets: Buddhist Economics (From an article by the economist E.F.Schumacher in Resurgence magazine, 1968) "The Buddhist point of view takes the function of work to be at least threefold: to give a man a chance to utilize and develop his faculties; to enable him to overcome his ego-centeredness by joining with other people in a common task; and to bring forth the goods and services needed for a becoming existence. Again, the consequences that flow from this view are endless. To organize work in such a manner that it becomes meaningless, boring, stultifying, or nerveracking for the worker would be little short of criminal; it would indicate a greater concern with goods than with people, an evil lack of compassion and a soul-destroying degree of attachment to the most primitive side of this worldly existence. Equally, to strive for leisure as an alternative to work would be considered a complete misunderstanding of one of the basic truths of human existence, namely, that work and leisure are complementary parts of the same living process and cannot be separated without destroying the joy of work and the bliss of leisure.

22 Alternate Views on Economics & Markets: Buddhist Economics (cont) From the Buddhist point of view, there are therefore two types of mechanization which must be clearly distinguished: one that enhances a man's skill and power and one that turns the work of man over to a mechanical slave. "The craftsman himself", says Ananda Coomaraswamy, a man equally competent to talk about the Modern West as the Ancient East, "the craftsman himself can always, if allowed to, draw the delicate distinction between the machine and the tool. The carpet loom is a tool, a contrivance for holding warp threads at a stretch for the pile to be woven round them by the craftsman's fingers; but the power loom is a machine, and its significance as a destroyer of culture lies in the fact that it does the essentially human part of the work". It is clear, therefore, that Buddhist economics must be very different from the economics of modern materialism, since the Buddhist sees the essence of civilization not in the multiplication of wants but in the purification of human character. Character, at the same time, is formed primarily by a man's work. And work, properly conducted in conditions of human dignity and freedom, blesses those who do it and equally their products. The Indian philospher and economist J.C.Kumarappa sums up the matter as follows:

23 Alternate Views on Economics & Markets: Buddhist Economics (cont) "If the nature of the work is properly appreciated and applied, it will stand in the same relation to the higher faculties as food is to the physical body. It nourishes and enlivens the higher man and urges him to produce the best he is capable of. It directs his freewill along the proper course and disciplines the animal in him into progressive channels. It furnishes an excellent background for man to display his scale of values and develop his personality."

2. WHAT ARE THE KEY POLICY ANALYSIS TOOLS/MODELS/OPTIONS? Larry D. Sanders Fall 2005 Dept. of Ag Economics Oklahoma State University.

Documents

politics slide

transfers slide

demand supply

role of economics

vacuum economics

services payments

objective analysis

sets of interests