II. Externalities      A. Externalities are costs or benefits not accounted for in the price of a product          that accrue to those outside or external to the market place.      B. Please review Part IV of  6) Government's Economic Functions for an           analysis of government action to decrease externality costs and increase          externality benefits      C. Econ Concepts in 60 Seconds Video on Negative Externalities (Spillover Costs)      D. Coase's Theorem          1. Analysis by Ronald Coase revealed that government should not get involved              with disputes over externality costs when property ownership is well-defined              and the number of people involved is small.            2. He demonstrated that individual maximizing behavior would correct these problems.            3. The government should only be involved when the number of participants is so large               as to make bargaining costs prohibitive.           4. For example, the government should not get involved in a noise pollution problem               near an amusement park because of the small number of people involved but                should get involved with acid rain generated in the Midwest and falling into New               England because of the large number of people involved.           5. See               a.  The World According to Coase,               b.  Illustration of the Coase Theorem               c.  Orange Blossom Special: Externalities and the Coase Theorem               d. Externalities-- The Lives of Others: Pigouvian Taxes 8/19/17             What to do when the interests of individuals and society do not coincide?           6. Coase theorem - from Wikipedia has additional information.      E. Solving the pollution problem Orange Blossom Special           Externalities and Coase Theorem          1. The market solution              a. First, taking into account diminishing returns, calculate the economically                  tolerable level of pollution acceptable to society. This can be done by                   comparing the marginal costs to society of  pollution (supply), which                   increases with more anti-pollution spending, with the marginal gain to                  society of a clean environment (demand), which decreases with                  additional spending.               b. The resulting quantity of acceptable pollution would be fixed and sold                    as "rights" to pollute.               c. Industrialization causes an increase in the demand to pollute and with a                   fixed supply, the costs of rights to pollute would increase.               d. Those who want goods that pollute would simply have to pay!          2. Other solutions              a. Taxes and subsidies              b. Regulation              c. Moral suasion                   3. For more insight into tradable rights read Trading the Earth,               the politics behind tradable pollution rights by Sharon Beder.      F. Using liability rules and lawsuits to eliminate externality costs.          1. Laws and a damage recovery system exist.          2. Cost, time delays and uncertainty as to outcome hamper this method.	history-of-us-taxes
	MCS is marginal cost to society MGS is marginal gain to society MRPP is marginal revenue product of pollution
	Measures of Pollution

III. Democracy and economic efficiency      A. Majority rule is often inefficient          1. A slight majority of people may vote less public spending in an area              because their perceived benefit is slightly below the good's average              cost they would pay as a taxpayer.          2. Those voting for the activity (the minority) would receive a benefit              substantially greater than the average costs.           3. As a result society does not invest in something with a positive total return.           4. An example would be people who feel spending on education is not               beneficial and vote for less spending in spite of the substantial benefit               received by children.           5. The public good is voted less money even though total benefit exceeds              total cost.      B. Rent-seekers are people attempting to use public policy to secure economic          rent (Sr)  for themselves at the expense of consumer surplus (Sc) received          in the marketplace and in some cases, the public interest.       C. Special interest groups are composed of a few people with much to gain           from a political outcome.           1. Through political efforts they foster desired results at the expense of the                many who acquiesce because individually they have little to lose.           2. These groups often form Political Action Committees (PACs) to lobby              on their behalf.      D. Logrolling - wiki is trading votes and influence for projects which are not           of interest in return for votes and influence for projects which are of interest      E. No Country for Young People examines wage policies affect on younger           workers.      F. Trump vs. the Regulatory State Robert Samuelson, Washington Post

SC is surplus going to consumers  SL is surplus lost SR is surplus going to rent-seeker

IV. Cost-Benefit       A. Government Regulation			Read Grandfather Government Regulation Cost Report - by MWHodges for a conservative view. Liberal view is hard to find.
Regulation1	Annual Deaths Per 100,000 Exposed	Cost Per Life Saved
Mandatory seat belts	9.1	$390,000
Prohibit alcohol and drug use by railroad workers	.2	$650,000
Control and disposal standards for benzene	2.1	$4,000,000
Disposal standards for uranium waste	43.0	$69,000,000
Restrictions on worker exposure to asbestos	6.7	$117,000,000
.1"Bringing Reason To Regulation," Louis S. Richman, Fortune, October 19, 1992

B. Development of the US Security State "They who can give up essential liberty to obtain a little  temporary safety, deserve neither liberty nor safety" Benjamin Franklin At a more basic public-choice level, the development of the Security State creates constituencies that will render its retreat very difficult if not impossible. Just think of the jobs and privileges created in the security apparatus during the past few decades, from the ordinary policemen transformed into SWAT soldiers to the dignified border cops and the roughly 50,000 TSA employees. They won’t give up their turf easily.

Ian Bremmer of GZERO international consultants believes that from a budget standpoint the US has overhyped and overspent on terrorism since 9/11. In US, Worldwide terrorism is much more prevalent and excluding Syria, and Muslim Terror  against Muslims, most worldwide terror is done by White Supremacists Bremmer on New Zealand Christchurch Killer Manifesto

V. Managing Entitlements

Summary	Definition	Who Benefits from Most to Least	Problems	Concerns
Medicare	Subsidized healthcare for the elderly	All benefit are the same, high income earners pay most	Required additional health care cost difficult for many	Longer life especially for poor people who now also have subsidized health care will increases cost. Free cases poorer health. Solutions, later eligibility, less coverage, higher deductibles currently not acceptable to electorate.
Social Security	Retirement income, partial at 62, max at 70,	Low income earners receive ha higher investment return, some receive death and spousal benefits See  Table 1 and  Table 3	Deficit concerns until baby boomers die, retirement age raised or young people vote. SS Benefits are 100% Secure bur their real value depends on economic success..	Solution just time or later retirement but politicians will not act until forced by electorate Increased negative cash flow should add political pressure.
Tax Expenditures	Legal deductions and exemptions from income decrease tax collections	Employee sponsored health insurance,401K, long-term capital imputed rental income, mortgage interest, earned income tax credits, deferred income from controlled foreign corporations Table 2	Tax payers don't appreciate  their benefit (entitlements?)	Solution of decreasing them by a third is unacceptable to electorate though this would have increase tax collections $400 billion in 2015 when the deficit was $439 billion.

Source: Entitlements Require Political Action

 

See Political Economy Issues related Videos        Political Controversies

VI. Has Helping the Unemployed Worked The War on Work—and How to End It   "Unfortunately, policymakers seem intent on making the joblessness crisis worse. The past decade or so has seen a resurgent progressive focus on inequality—and little concern among progressives about the downsides of discouraging work. Advocates of a $15 minimum hourly wage, for example, don’t seem to mind, or believe, that such policies deter firms from hiring less skilled workers. The University of California–San Diego’s Jeffrey Clemens examined states where higher federal minimum wages raised the effective state-level minimum wage during the last decade. He found that the higher minimum “reduced employment among individuals ages 16 to 30 with less than a high school education by 5.6 percentage points,” which accounted for “43 percent of the sustained, 13 percentage point decline in this skill group’s employment rate.” The decision to prioritize equality over employment is particularly puzzling, given that social scientists have repeatedly found that unemployment is the greater evil. Economists Andrew Clark and Andrew Oswald have documented the huge drop in happiness associated with unemployment—about ten times larger than that associated with a reduction in earnings from the $50,000–$75,000 range to the $35,000–$50,000 bracket. One recent study estimated that unemployment leads to 45,000 suicides worldwide annually. Jobless husbands have a 50 percent higher divorce rate than employed husbands. The impact of lower income on suicide and divorce is much smaller. The negative effects of unemployment are magnified because it so often becomes a semipermanent state. Time-use studies help us understand why the unemployed are so miserable. Jobless men don’t do a lot more socializing; they don’t spend much more time with their kids. They do spend an extra 100 minutes daily watching television, and they sleep more. The jobless also are more likely to use illegal drugs. While fewer than 10 percent of full-time workers have used an illegal substance in any given week, 18 percent of the unemployed have done drugs in the last seven days, according to a 2013 study by Alejandro Badel and Brian Greaney.   Joblessness and disability are also particularly associated with America’s deadly opioid epidemic.David Cutler and  I examined the rise in opioid deaths between 1992 and 2012. The strongest correlate of those deaths is the share of the population on disability. That connection suggests a combination of the direct influence of being disabled, which generates a demand for painkillers; the availability of the drugs through the health-care system; and the psychological misery of having no economic future. Increasing the benefits received by nonemployed persons may make their lives easier in a material sense but won’t help reattach them to the labor force. It won’t give them the sense of pride that comes from economic independence. It won’t give them the reassuring social interactions that come from workplace relationships. When societies sacrifice employment for a notion of income equality, they make the wrong choice. Politicians, when they do focus on long-term unemployment, too often advance poorly targeted solutions, such as faster growth, more infrastructure investment, and less trade. More robust GDP growth is always a worthy aim, but it seems unlikely to get the chronically jobless back to work. The booms of the 1990s and early 2000s never came close to restoring the high employment rates last seen in the 1970s. Between 1976 and 2015, Nevada’s GDP grew the most and Michigan’s GDP grew the least among American states. Yet the two states had almost identical rises in the share of jobless prime-age men. Infrastructure spending similarly seems poorly targeted to ease the problem. Contemporary infrastructure projects rely on skilled workers, typically with wages exceeding $25 per hour; most of today’s jobless lack such skills. Further, the current employment in highway, street, and bridge construction in the U.S. is only 316,000. Even if this number rose by 50 percent, it would still mean only a small reduction in the millions of jobless Americans. And the nation needs infrastructure most in areas with the highest population density; joblessness is most common outside metropolitan America. (See “If You Build It . . .,” Summer 2016.) Finally, while it’s possible that the rise of American joblessness would have been slower if the U.S. had weaker trade ties to lower-wage countries like Mexico and China, American manufacturers have already adapted to a globalized world by mechanizing and outsourcing. We have little reason to be confident that restrictions on trade would bring the old jobs back. Trade wars would have an economic price, too. American exporters would cut back hiring. The cost of imported manufactured goods would rise, and U.S. consumers would pay more, in exchange for—at best—uncertain employment gains. The techno-futurist narrative holds that machines will displace most workers, eventually. Social peace will be maintained only if the armies of the jobless are kept quiet with generous universal-income payments. This vision recalls John Maynard Keynes’s 1930 essay “Economic Possibilities for Our Grandchildren,” which predicts a future world of leisure, in which his grandchildren would be able to satisfy their basic needs with a few hours of labor and then spend the rest of their waking hours edifying themselves with culture and fun. But for many of us, technological progress has led to longer work hours, not playtime. Entrepreneurs conjured more products that generated more earnings. Almost no Americans today would be happy with the lifestyle of their ancestors in 1930. For many, work also became not only more remunerative but more interesting. No Pennsylvania miner was likely to show up for extra hours (without extra pay) voluntarily. Google employees do it all the time. Joblessness is not foreordained, because entrepreneurs can always dream up new ways of making labor productive. Ten years ago, millions of Americans wanted inexpensive car service. Uber showed how underemployed workers could earn something providing that service. Prosperous, time-short Americans are desperate for a host of other services—they want not only drivers but also cooks for their dinners and nurses for their elderly parents and much more. There is no shortage of demand for the right kinds of labor, and entrepreneurial insight could multiply the number of new tasks that could be performed by the currently out-of-work. Yet over the last 30 years, entrepreneurial talent has focused far more on delivering new tools for the skilled than on employment for the unlucky. Whereas Henry Ford employed hundreds of thousands of Americans without college degrees, Mark Zuckerberg primarily hires highly educated programmers." Unnfortunately, policymakers seem intent on making the joblessness crisis worse. Little concern among progressives about the downsides of discouraging work. Jeffrey Clemens increase state-level minimum wage during the last decade.  “reduced employment among individuals ages 16 to 30 with less than a high school education by 5.6 percentage points,”  which accounted for “43 percent of the sustained, 13 percentage point decline in this skill group’s employment rate.”   "huge drop in happiness associated with unemployment—about ten times larger than that associated with a reduction in earnings from the $50,000–$75,000 range to the $35,000–$50,000 bracket. One recent study estimated that unemployment leads to 45,000 suicides worldwide annually. Jobless husbands have a 50 percent higher divorce rate than employed husbands. The impact of lower income on suicide and divorce is much smaller. The negative effects of unemployment are magnified because it so often becomes a semipermanent state." Increasing the benefits received by nonemployed persons may make their lives easier in a material sense but won’t help reattach them to the labor force Joblessness and disability are also particularly associated with America’s deadly opioid epidemic.

VII. Sundry Materials       A. Everyone Is On Welfare       B. Boondoggle name given to government projects early         in FDR's presidency to describe wastefulness.       C. Outsourcing Government Services is  About Looting       D. Improving Public Policy Through Behavioral Economics       E. How Income Inequality Is Affected by Labor Share
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