Chapter 6 Government's Economic Functions

   I. Provide a proper legal atmosphere, 
      rules for capitalism

 II. Insure competition 
         A. Antitrust laws protect against abuse of monopoly
           power.
      B. Natural (justifiable) monopolies such as AT&T
           were allowed because duplicating high-cost fixed
           investments is illogical.
      C. The emphasis on free markets discussed in chapter
           3 has resulted in some natural monopolies being
           broken into smaller companies which had to
           compete against new companies touting  new
           technologies.

III. Provide equitable income distribution 
         A. Transfer payments where a government moves
            general revenue to a specific group, i.e., Aid to
            Families with Dependent Children and college
            students are examples.
       B. Market Intervention (affecting supply and demand)
            1. Minimum wage decreases supply raising price
                and lowering quantity.
            2. Excise taxes on alcohol, cigarettes, jewelry, etc.,
                deceases supply.
            3. Farm price supports, aid to small business and
                education increases supply.

 

 

 

 

 

 

 

Middle-class tax entitlements, called Tax Expenditures, (benefits) redistribute income.

1. Mortgage interest

6. Employer-paid unemployment
    insurance
2. Home equity loan interest 7. Employer portion of social
    security
3. Property taxes 8. Employer-paid workman's
    compensation insurance
4. Employer-paid health
    insurance
9. Employer paid retirement plans
5. Employer-paid dental
    insurance
 

Wealthy benefit most from tax subsidies: study  
Reuters 9/22/10
 

IV. Adjust for market failures
          A. Adjust for spillovers (externalities)
           1. Effects of a market system often spillover onto non-participants who 
               are external to the market transaction. 
           2. Both costs and benefits result.
               a. Pollution hurts (costs) society so government tries to affect the 
                   supply of, and demand for, pollution causing products such as
                   automobiles. For automobiles, they lower supply by requiring 
                   catalytic converters and lower demand with high excise taxes. 
               b. An educated workforce benefits society so government increases
                   demand (aid to students) and supply (aid to colleges).

    

 

                        c. Our addiction to oil has and global warming has 
                    government's attention, but little action
.  

 


     B. Providing public goods and services like parks,
         defense, education etc.  

 

       
    C. Government does more in some countries
           than others.

Editors Note: Cost Data, taken from The Big Picture Blog, of  October 18, 200,7 some governments bare the cost of health insurance which increases these percentages.

economist.com/ 6/22/13 p55

               D. usgovernmentspendinghas government spending by major category.
       E. Democratic Capitalism is more costley than a Capitalistic Democracy 

President's Proposed Discretionary Spending

V. Affecting total economic activity
     A. This includes a multitude of diverse topics. 
          1. Trying to limit the effects of business cycles by lowering
               unemployment and inflation 
          2. Assisting companies trying to compete in the new global
              economy. Example: Decades of government sponsored
              research creating franking which could
              result in U.S. energy independence. 
          3. Using foreign aid to make sure we have stable oil prices  
              a. Israel-United States military relations
              b. US and Foreign Aid Assistance from GlobalIssues.org
          4. The Bailouts of 2007 results are in. 

    
 B. Opinions differ substantially as to the responsibilities or lack of
          responsibilities government has in these areas.

  VI. Macroeconomic goals of government 7.20

  VII. For more information visit
       
A. Democratic Capitalism vs. Capitalistic Democracy 
        B. The Size and Functions of Government
                           And Economic Growth from the Joint Economic 
            Committee of the United States Senate and
        C. The 2006 Transparency International Corruption
m
                           Perceptions Index from Infoplease and
            
Political Corruption from the University of Exeter 
        D. Solyndra Failure explores governments attempt to 

           foster green technology.
        E. Book review Why Governm Fail So  Often 4/9/14  
Video

>

 

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