Chapter 6 Government's Economic Functions
I. Provide a proper legal atmosphere    II. Insure competition   III. Provide equitable income distribution

IV. Adjust for market failures    V. Affecting total economic activity    VI. Criticism Modern Capitalism

   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 See Presidential Issue Entitlements


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. Discretionary Spending Down 50 to 33%




    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. 6/22/13 p55

       D. usgovernmentspending has government spending by major category.
Democratic Capitalism is more costly 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
          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

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 Government Fail So  Often 4/9/14  




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