Abstract
The purpose of this paper is to show how inflation is endemic to the budgetary process of the United States Federal Government. To do this we relate models of government expenditure to models of the economy, thus joining in theory what have in practice always been together.
Keywords
- Monetary Policy
- Price Level
- Fiscal Policy
- Government Expenditure
- Money Supply
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If increased economy and efficiency in the expenditure of funds is to be secured, it is thus imperative that the evils should be attacked at their source. The only way by which this can be done is by placing definite responsibility upon some officer of the Government to receive the requests for funds as originally formulated by bureau and departmental chiefs and subjecting them to that scrutiny, revision, and correlation that has been described. In the National Government there can be no question but that the officer upon whom should be placed this responsibility is the President of the United States. House Select Committee on the Budget (regarding the 1921 Budget and Accounting Act) H. Rept. No. 14, 67th Congress 1st Sess., at 5.
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Notes
In the preparation of the remainder of this section and the next we have made extensive use of the work of John P. Crecine and his colleagues, Mark Kamlett, David Mowery and Chandler Stolp, under the support of NSF Grant SOC-72–05488. We are grateful for extensive discussions with them and refer the reader to Crecine’s work on budgeting processes in the Department of Defence in Volume IV, Appendices: Commission on the Organization of Government for the Conduct of Foreign Policy, US Government Printing Office (1975), pp. 63–110, and our forthcoming joint paper with Crecine, Some Structural Characteristics of the Federal Budgetary Process’. We also gratefully acknowledge the support of the Center for Advanced Study in the Behavioral Sciences during the academic year 1974–75.
During the Kennedy—Johnson era, for political reasons Defense Secretary McNamara avoided communicating explicit military ceilings during the executive portion of the budget cycle. However, it is not clear whether or not implicit military totals were used but not reported. See J. P. Crecine, ‘Defense Budgeting’, Chapter 7 in R. F. Byrne, A. Charnes, W. W. Cooper, O. A. Davis and Dorothy Gifford (eds), Studies in Budgeting (North Holland, Amsterdam, 1971).
See Aaron Wildaysky, ‘Co-ordination Without a Co-ordinator’, Speaking Truth to Power: The Art and Craft of Policy Analysis Chapter 4, (Little, Brown, Boston, 1979).
For an excellent discussion of controllability see Barry M. Blechman, Edward M. Gramlich and Robert W. Hartman, Budget controllability and planning, Chapter 7 of Setting National Priorities, The 1976 Budget (The Brookings Institution, Washington DC, 1976), pp. 190–230.
See Otto A. Davis, M. A. H. Dempster and Aaron Wildaysky, ‘A theory of the budgetary process’, Amer. Political Sci. Rev. 60 (1966), 529–47;‘On the process of budgeting: An empirical study of Congressional appropriation’, Papers in Non-Market Decision Making ,1 (1966), 63–132;‘On the process of budgeting II: An empirical study of Congressional appropriation’, Chapter 9 in R. F. Byrne, A. Charnes, W. W. Cooper, O. A. Davis and Dorothy Gifford (eds), Studies in Budgeting (North Holland, Amsterdam, 1971);‘Towards a predictive theory of government expenditure: U.S. domestic appropriations’, British J. Political Sci. 4 (1974), 419–52, and our forthcoming monograph.
See Aaron Wildaysky, The Politics of the Budget Process (Little, Brown, Boston, 1975).
Mosher, F., Program Budgeting: Theory and Practice (Chicago: Public Administration Service, 1954), p. 239.
Shubik, Martin, ‘Budgets in a decentralized organisation with incomplete organisation’, Report P-4514, Rand Corporation, Santa Monica, December (1970).
Crecine, J. P. and Gregory Fischer, ‘On resource allocation processes in the U.S. Department of Defense’, Discussion Paper, University of Michigan, Institute of Public Policy Studies, October (1971).
Harvey Galper and Helmut F. Wendell, ‘Progress in forecasting the Federal budget’, Proc. Economics & Business Section Amer. Statistical Society (1968), 86–98.
In Collat’s study of corporate and individual tax revenue, a similar conclusion was reached. See Donald S. Collat, Voting Behaviour and the Formation ofTax Policy. D. Phil. Thesis, University of Oxford (1978), Chapters 6,7 and 8.
See, for example, William D. Nordhaus, ‘The political business cycle’, Rev. of Economic Studies, 42 (1975), 169–190;
Bruno S. Frey and Friedrich Schneider, ‘On the modelling of politico-economic interdependence’, European J. of Political Res., 3 (1975), 339–60;
and Edward R. Tufte, Political Control of the Economy, (Princeton University Press, Princeton, 1978).
M. A. H. Dempster, ‘A crude model of the modern economy’, Center for Advanced Study in the Behavioral Sciences, Stanford, California (1975). Revised January (1976);
M. A. H. Dempster and Otto A. Davis, ‘On macroeconomics: Comparative statics’, Center for Advanced Study in the Behavioral Sciences, Stanford, June (1975). Revised January (1976).
Cf. Walter W. Heller, ‘What’s right with economics?’ Presidential address to the American Economic Association, San Francisco, 29 December 1974.
The reader is referred to Davis and Dempster (1975), op. cit., for details. For a discussion of related research see J. P. Crecine, M. A. H. Dempster and Aaron Wildaysky, ‘Budgets, bureaucrats and the Executive: Influences on the size of the public sector’, to appear in Proceedings of the Conference on the Causes and Consequences of Public Sector Growth, Dorado Beach, Puerto Rico, 1–5 November 1978, P. Aranson and P. Ordeshook (eds).
In the above model analysis the interaction of domestic policy and international trade and financial considerations has of course been ignored through taking the latter (X, F and v of Table 13.5) as fixed. In this regard see H. Sneesons, ‘Inflation in Western economies’, CORE Discussion Paper 7819, Université Catholique de Louvain, May (1978).
It is interesting to note that the necessity for this state of affairs was explicitly argued by Alvin H. Hansen in the late 1940s: see Robert L. Heilbroner, The Worldly Philosophers (Simon & Schuster, New York, 1961), Chapter 10. Hansen saw underlying population growth — Harrod’s ‘warranted’ growth — as insufficient to allow capitalist industrial economies to continue to expand. But this view ignores the role of technical progress and the possibility of a service — versus a goods-based economy.
See, for example: Joseph A. Schumpeter, The Theory of Economic Development (Harvard University Press, Cambridge, 1934), and Capitalism, Socialism and Democracy (Harper & Row, New York, 1950);
Ludwig von Mises, Human Action (Yale University Press, New Haven, 1949);
and Friedrich A. von Hayek, The Road to Serfdom (Chicago University Press, Chicago, 1944).
For an elegantly succinct statement of this dynamic — as opposed to the static neoclassical relative price — role of the market, see Hayek’s Chapter 12, ‘Competition as a discovery procedure’, in New Studies in Philosophy, Politics, Economics and the History of Ideas (Routledge & Kegan Paul, London, 1978).
Richard R. Nelson and Sidney G. Winter, ‘In search of useful theory of innovation’, Research Policy, 6 (1977), 36–76, 64.
Richard R. Nelson and Sidney G. Winter, ‘Firm and industry response to changed market conditions: An evolutionary approach’, Ins. for Social and Policy Research Working Paper No. 788, Yale University, January (1978), p. 29.
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© 1982 International Economic Association
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Dempster, M., Wildavsky, A. (1982). Modelling the US Federal Spending Process: Overview and Implications. In: Matthews, R.C.O., Stafford, G.B. (eds) The Grants Economy and Collective Consumption. International Economic Association Series . Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-05377-3_13
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