Transcript The Economics of Government Spending

THE ECONOMICS OF
GOVERNMENT SPENDING
10-1
THE ECONOMICS OF GOVERNMENT SPENDING
Why do we spend so much money?
Has it always been this way?
https://www.youtube.com/watch?v=T5SFXgGTnAY
https://www.youtube.com/watch?v=3ugDU2qNcyg
THE ECONOMICS OF GOVERNMENT SPENDING
Politicians can’t so no
Changing ideas of government roles
THE ECONOMICS OF GOVERNMENT SPENDING
Pork Barrel Spending
 Pork = earmarks (line item budget expenditure that circumvents normal budget
procedures and benefits a small number of people or businesses)
 Bad for the economy?
 Benefits to a few at the cost of many?
 Good for economy?
 Fund innovative/forward-thinking projects
GOVERNMENT SPENDING IN PERSPECTIVE
Public Sector v. Private Sector?
Pre Great Depression?
SPENDING SINCE THE 1930S
Change in public opinion
 New Deal
 TVA
WWII
 War production
Ever since? Continued to grow
 1960 = 23% GDP
 2012 = +33% GDP
SPENDING SINCE THE 1930S
How many goods/services should government provide?
What should be provided by the private sector?
Why do you think some people object to the government providing
certain goods and services?
TWO TYPES OF SPENDING
Goods/services
 Tanks, planes, ships, space shuttles, office buildings, land for parks, stuff for schools,
etc.
 Utilities
 Employees’ wages/salaries/benefits
Transfer payment—payment the govt receives no goods/services in
return
 Social Security, unemployment, welfare, etc.
TWO TYPES OF SPENDING
Transfer payment
 Grant-in-aid—transfer payment from one level of government to another that does
not involve compensation
 Highway grants, construction of new pub schools (sometimes)
 Could be partial grant
Why do states rely on federal funds for projects like highway
construction?
IMPACT OF GOVERNMENT SPENDING
Resource allocation
Distribution of income
Private sector production
Tax burden
AFFECTING RESOURCE ALLOCATION
Govt spends $ on missile systems in rural areas rather than welfare in
urban = stimulates econ in rural
Grants/subsidies in agriculture affect production (and removal of
subsidies)
No Child Left Behind = more time spent on math and reading, less
time on other subjects
REDISTRIBUTING INCOME
Who receives financial support from govt?
Buy military whatever from Factory A rather than Factory B affects
communities
Money to aid 3rd world countries rather than domestic problems, etc
COMPETING WITH THE PRIVATE SECTOR
Public college v. Private
 Cost difference due to subsidies
Health care
 VA
 Affordable Care Act
INCREASING THE TAX BURDEN
More govt spending = more taxes
Toss up between benefits provided by government and reducing taxes
Govt spending (at all levels) = 1/3 GDP
Many people want more govt spending (which inevitably would mean
higher taxes)