THE LOGIC OF THE BUDGET PROCESSThe budget process provides the medium for determining what government services will be provided and how they will be financed. It may also help establish how the services will be provided. The basic budgeting problem, simple stated, is the following: “On what basic shall it be decided to allocate X dollars to activity A instead of activity B?”1 That is a pretty simple-sounding question but, like many things in life, its application is where the problems lurk. How many dollars should be moved from private businesses and individuals to government and, once moved to government, how much should go to each government activity? Indeed, the answer is remarkably clear: move money from private to public use and among alternative public uses until it is not possible to move one dollar from one use to another without losing as much from where you took it as you gain from where you put it. It’s not a big deal conceptually. There is no lack of theoretical guidance as to know as to how things should work. Markets for private goods do the allocation invisibly, as prices and profits provide the resource allocation signals and private businesses and individuals take it from there. But markets don’t work for public goods, the home turf of governments, so here come the lawmakers to do the allocation job that markets can’t. They may bungle the job (in a democracy, we elected them, so it is ultimately our fault), but the budget process is where those choices get made for government operations, not so quietly and we hope not so invisibly, but definitely politically.
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