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CHAPTER 4 -- Part 2: THE PUBLIC SECTOR
During World War II, the public sector purchased half of the resources, while the federal share declined.
In the mid-1960s, state and local spending caught up with federal spending.
More than 80,000 state and local government entities buy more output than Uncle Sam.
An overview of federal, state, and local budgets can be found in Figure 4.5.
Most federal expenditure is absorbed by national defense and health care.
School expenditures are the majority of direct purchases.
Most state and local spending is on colleges.
Welfare and prisons are the fastest-growing areas for state expenditure.
Sewage and trash services are claiming more budgets.
We pay for government spending, no matter what we think of it.
Factors of production that could be used to produce consumer goods are absorbed by government expenditures on goods and services.
Cars, houses, and restaurant meals are not available to be produced from resources used to produce missile shields.
We do not give desired goods or services to the government.
The government is forgone in order to get income in the form of taxes.
The dollars are used to buy things.
Taxes are the primary source of government revenues.
The federal government collected a lot of its revenue from taxes on alcoholic beverages.
The federal government didn't have the power to collect income taxes.
The federal government has the authority to collect income taxes thanks to the Sixteenth Amendment.
Although the federal government still collects taxes on alcoholic beverages, the individual income tax is the largest single source of government revenue.
The income was taxed at 10 percent.
The purchasing power is transferred from the private sector to the individual lic sector.
The individual income tax is 45%.
The Social Security pay 37% roll tax is the second largest source of federal taxes.
The marginal tax rate was 35 percent for people with more than $350,000 in income.
The Social Security tax is the same on every payroll tax.
People working now transfer part of their earnings to retired workers.
These "contributions" are mandatory and take the form of payroll deductions.
Employers contributed an equal amount to Social Security in 2007, as each worker paid 7.65 percent of his or her wages.
A tax system in which tax rates fall as incomes rise, the government collected nearly $900 billion.
This isn't the case.
Every payroll dollar is subject to the Social Security tax.
There are less than 4 million corporations, and their profits are small compared to total consumer income.
Excise taxes are the last major source of federal revenue.
The federal government taxes a variety of goods and services, including liquor, cigarettes, air fares, and more.
Businesses and consumers pay taxes.
Although almost all states and many cities impose income taxes, effective tax rates are so low that income tax revenues are less than sales and property tax revenues.
I can't find anything wrong here.
The government can use taxes to purchase scarce resources.
Less privatesector purchases are implied by higher taxes.
A recent Gallup survey confirms the fears of many people.
A person making $20,000 spends three times as much as someone making $30,000 on lottery tickets, while someone making $30,000 contributes much more to lottery revenues.
Those with higher incomes are not represented by these numbers.
People age spending.
For every one or two people who play the lottery with an income of less than $20,000 a year, others spend thousands.
It is nearly double the amount spent in any other income group.
The significance of this is magnified when we look at Source: Action Institute.
The figures are from "Perpetuating Poverty: the figures".
Jordan Ballor wrote about those with annual incomes ranging from $30,000 to $100,000.
The second-highest average was used with $50,000.
Poor people spend more on lottery tickets than rich people.
lotteries are a source of government revenue.
They take a bigger share of income from the poor than they do from the rich.
Consider a 4% sales tax.
A uniform tax rate like this might affect consumers differently.
Most of the income of people with lower incomes is spent on goods and services.
Most of their income is subject to sales taxes.
A person with a high income can save part of his or her income to avoid sales taxes.
When the tax rate is 4 percent, a family that earns $40,000 and spends $30,000 on goods and services pays $1,200 in sales taxes.
Poor people devote a larger portion of the most comprehensive data on state and local government their incomes to housing costs.
A larger share of a poor family's income is subject to finances.
You can visit the property taxes.
State lotteries are also regressive.
Government intervention in the marketplace is desirable.
A laissez-faire economy can be left short of its economic goals if the market mechanism fails.
Communist nations used to think that complete government control of production, consumption, and distribution decisions was the best path to utopia.
Making matters worse.
The failures reflect government failure.
Government intervention in the FOR WHOM question is only desirable if the distribution of income gets better as a result of taxes and transfers.
Government failure may occur if the costs of government intervention exceed the benefits of an improved output mix, cleaner production methods, or a fair distribution of income.
Taxpayers seem to think that the government fails.
Government intervention is justified by market failure.
The government may fail to fulfill our economic goals if they waste resources.
The public sector isn't producing as many services as it could with the sources it has.
We can't possibly be producing the optimal mix of output if the government is wasting resources.
The government might still be guilty of government failure even if it wasn't wasting resources.
The larger question is how many government services we really want.
The government has an opportunity cost.
There are fewer workers available to private producers and consumers when there are more police officers or teachers in the public sector.
National defense is a function of the public sector.
It's not clear how much the government should spend on tanks, aircraft carriers, and missile shields.
Law enforcement and environmental protection are the same thing.
There is a new perspective on the question of government size with the concept of opportunity costs.
We have to decide what we're willing to give up to support the public sector.
If we value forgone private production and consumption more highly than we value the added strength of our defenses, a military force of over one million men and women is too big.
If the highway it builds is less desired than the park and homes it replaced, the government has gone too far.
The assessment of bigness has to come back to a comparison of what is given and what is received.
The points on the production possibilities curve are where the assessment of government failure comes from.
This is a difficult question to answer.
The concept of opportunity cost can be used to assess the effectiveness of government interventions.
The value of private goods given up to produce a project is compared to the benefits of a public project.
We could find the optimal mix of output if we performed this calculation repeatedly along the perimeter of the production possibilities curve.
The principles of cost-benefit analysis are deceptive.
Some people attach a lot of value to this service while others don't.
We can gauge the benefits of a product by the amount of money consumers are willing to pay for it.
This price signal is not available for most public services because of externalities and the free-rider problem.
This opens the door to endless political arguments about the benefits of government activity.
There are problems with evaluating the government's efforts to redistribute incomes.
Government transfer payments now go to retired workers, disabled people, veterans, farmers, sick people, students, pregnant women, unemployed people, poor people, and a long list of other recipients.
The government has to raise tax revenues to pay for these transfers.
Net effects on the distribution of income aren't easy to figure out with so many people paying taxes.
We don't know if this government intervention is worth it until we know how the FOR WHOM answer was changed and what the tax-and-transfer effort cost us.
Voting mechanisms replace the market mechanism in allocating resources to the public sector.
The variety and volume of public goods are determined by the most votes, just as the variety and volume of private goods are determined by the most dollars, according to some people.
The level and mix of output seem to command the most votes.
The link between the ballot box and output decisions can be very clear.
State and local governments are often required to get voter approval before building anything.
In 2006 governments sought voter approval for $80 billion of new borrowing to finance public expenditure, but over 80 percent of those requests were approved.
The exception is bond referenda.
Visit them less than 1 percent of state and local expenditures.
The recent sequence at www.ncsl.org is a con that voter control of public spending is less direct.
It's the same at state and local levels.
Voters may be able to dictate the general level and pattern of public expenditures but have little influence on everyday output decisions.
The market mechanism is a poor substitute for the ballot box.
The resulting mix of output might not be optimal if the link between the ballot box and allocation decisions were stronger.
A majority of 51 percent might be achieved by a democratic vote.
The answer is not obvious.
A majority of the voters don't want resources used this way.
We will make those people worse off if we build the highways.
Their loss may be more than what they gain.
The basic dilemma is twofold.
We don't know what the real demand is for public services, and votes alone don't reflect the intensity of individual demands.
A stable consensus is impossible because real-world decision making involves so many choices.
Government officials are supposed to serve the people.
It doesn't take long for officials to realize that the public is not interested in government activities.
Government officials can set their own agendas.
The agendas may give priority to personal advancement over the needs of the public.
Legislative favors like tax breaks for supporters may be pursued more diligently by members of Congress.
There is a chance of attaining the socially optimal mix of output.
Public-choice theory extends the analysis of market behavior to political rational self-interest of rational self-interest.
Power, makers and voters are assumed to be the personal goals of public officials.
Public-choice theory states that bureaucrats are just as selfish as everyone else.
Public-choice theory gives a simple explanation for public-sector decision making.
Critics argue that the theory provides a narrow view of public servants.
Critics argue that some people do pursue larger, public goals, and that ideas can overwhelm self-interest.
According to Steven Kelman of Harvard, narrow selfinterest can't explain the War on Poverty of the 1960s, the tax revolt of the 1970s, or the deregulation movement of the 1980s.
The power of ideas is reflected in the changes in public policy.
Although self-interest can't provide a complete explanation of public decision making, it adds important perspectives on the policy process.
George Mason University's James Buchanan won the 1986 Nobel Prize in economics for helping develop the public-choice perspective.
It adds a personal aspect to the faceless mechanics of ballot box economics, cost-benefit analysis, and other "objective" mechanisms of public-sector decision making.
The Great Depression of the 1930s devastated the world economy.
It was clear that the market couldn't be trusted to answer the questions.
With unemployment, hunger, and homelessness at record levels, people everywhere turned to government for help.
Franklin Roosevelt's New Deal in the United States envisioned a more activist government, restoring full employment and assuring everyone some minimal level of economic security.
Government's ability to resolve economic issues continued to increase in the post-World War II era.
Maintenance of a large military establishment in the United States and elsewhere was justified by securing national defenses during the Cold War.
The War on Poverty brought about a huge increase in government social programs and income transfers.
The government's health care and retirement programs have grown rapidly as the U.S. population has aged.
There was a political consensus that expanded public services would improve society's welfare.
Public opinion did not keep up with the growth of government.
Opinion polls show that people don't think government intervention is the best way to resolve economic problems.
He tried to reduce government growth in social programs.
The end of the Cold War allowed for a reduction in military spending.
Between 1991 and 1998 military spending declined every year.
The federal share of output began to decline.
Government spending fell to 18 percent of GDP by 2000.
The decline in government spending was not limited to the United States.
Governments intervene to remedy market failure.
The public doesn't have a lot of confidence in government performance.
Governments in Europe and Latin America have downsized by privatization.
The global economy became more market-driven.
The U.S. government spending fell after 9/11.
In the 3 years, defense expenditures increased by 50 percent.
The war in Iraq expanded the government's claim on the economy's resources.
There isn't a clear trend in government growth.
The worldwide war against terrorism is likely to keep defense expenditures high for a long time.
Demands for public pensions and health care will increase as the population ages in the United States, Europe, and Asia.
Governments aren't likely to shrink again.
Whatever the size of the public sector, the continuing challenge will be to promote optimal outcomes in the economy tomorrow.
Market power allows a producer to prevent market failure and maintain a suboptimal mix of output.
LO1 policy seeks to limit market power.
The behavior of powerful externalities, market power, and inequitable distribution firms may be regulated by ernment.
Optimal mix of output or distribution of income may be the market-generated distribution of income.
Public goods are those that can't be exclusively consumed; they have taxes and transfer payments that redistribute them regardless of who pays.
The failures of the marketplace are reflected in the marketplace.
The market underproduces.
Government intervention is intended for the benefit of the public.
The federal government grew after 1930.
Transfer payments, defense gence between social and private costs or benefits, caus spending and health programs are some of the recent growth.
LO2 is ing market outcomes that are not optimal.
State and local governments spend more on output than the federal government does on benefits.
Most federal revenues are provided by income and payroll taxes.
Government failure happens when intervention moves the sector.
Income may be used to determine allocation decisions within the public sector.
Failure can result in waste on cost-benefit analysis.
The self-interests of government agents may affect decisions about when and resources.
There are numerical and graphing problems in the Student Problem Set at the back of the book.
The short-term business cycle and long-term economic growth are the central concerns of macroeconomics.
The goal is to increase the economy's capacity to produce goods and services in order to raise future living standards.
The emphasis in the short run is to maximize output and minimize unemployment.
The measurement tools used to gauge the nation's macroeconomic performance are the focus of Chapters 5 through 7.
Social and economic damage has been caused by the problems of unemployment.
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