2. WHAT ARE THE KEY POLICY ANALYSIS TOOLS/MODELS/OPTIONS? Larry
D. Sanders Fall 2005 Dept. of Ag Economics Oklahoma State
University
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2 INTRODUCTION Purpose: gain an awareness & understanding
of the analytical tools used to evaluate agricultural public
policy
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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.
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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.
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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
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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
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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
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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
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9 Power Clusters Surround Issues & Sets of Common Interests
AGRICULTURE ENVIRONMENT TRADE SENIORS POVERTY HEALTH CARE WEST
DEFENSE
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Administrative Agencies Legislative Committee Interest Groups
Professionals Volunteers Attentive Public Latent Public POWER
CLUSTER INFLUENTIALS
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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
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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)
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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.
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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
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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
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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
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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))
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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
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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
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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.
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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.
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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:
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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."