Transcript Chapter 16 Government Spending

Chapter 16 Government Spending

Growth of Government
Today there
are 22
million
government
workers at
all levels
1970’s State
and Local
Government
s increase
spending
In 1929
only 3
million
governme
nt workers
at all levels
1960’s
Federal
government
increases
spending in
public works
to even out
income
inequities
Depression
causes
greater
demand for
government
services
In the 1940’s
the
government
spends
billions to
pay for WWII
Public Works projects
 Definition - publicly used facilities such as schools
and highways that are built and paid for with tax
dollars
Why has Government Grown
 Today, total government purchases represent 19% of GDP.
 This figure does not include interest payments on debt or
transfer payments like welfare
 If those things are included spending exceeds 1/3 of the
GDP
 Not included in this amount is government mandated
private sector spending (like providing health care to your
employees)
Functions of Government
 Providing Public Goods
 Promoting General Welfare
 Regulation & Economic
Stability
Providing Public Goods
 Public Goods- goods or services that can be used by many individuals
at the same time without reducing the benefit each person receives,
like streetlights.
 Different levels of government share responsibility for public goods
like the legal system including courts, correctional institutions and law
enforcement agencies
 Some public goods are called merit goods (ones that is socially
desirable) like ballets, museums and classical music concerts
 There are also demerit goods (ones that are socially undesirable) like
tobacco, alcohol and gambling. The government exercise control over
these goods by taxing, regulating or prohibiting the manufacture, sale
and use of them
Promoting the General Welfare
 Americans have chosen to see that almost everyone in the
nation is provided with a certain minimum level of support
 Usually accomplished through income redistribution, or using
tax receipts to assist citizens in need
 2 General categories of assistance
 Social Insurance programs
 Public Assistance programs
Social Insurance Programs
 Definition – government programs that pay benefits to retired and
disabled workers, their families and the unemployed
 Social Security – federal program that provides monthly payments to
people who are retired or unable to work
 Medicare – federal program that provides low-cost health care for the
elderly
 Both are meant to be supplemental income supports not primary source
 Workers’ Compensation – programs that extends payments for medical
care to workers injured on the job
 Unemployment – program to provide income temporarily to people
who are unemployed through no fault of their own, must be actively
seeking new employment
Public-Assistance Programs
 Definition – programs that make payments to citizens based on
need; also called Welfare
 Supplemental Security Income – federal programs that include
food stamps and payments to the disabled or aged.
 Temporary Assistance for Needy Families – state run program
that provides assistance and work opportunities to needy
families
 Medicaid – state and federal program that pays health care
costs for low income and disabled persons
Regulation and Economic Stability
 Stable growth, low unemployment, and low inflation are the
primary economic goals of the government
 Externalities – economic side effects or by-products that affect
an uninvolved third party; can be negative or positive
 For example – a steel mill produces pollution that causes health
problems in the surrounding area, if there are no legal rules that
limit pollution the steel mill does not have to correct the negative
externalities
Government Regulation
Promoting
Competition
Protecting
consumers
Some
regulatory
functions of
Government
Supervising
labor and
management
relations
Regulating
negative byproducts of the
production
process
Ensuring Economic Stability
 Smoothing the ups and downs of the economy
 Attempt to shield citizens from harmful effects like
unemployment, high inflation, recessions and depressions
Critics of Government Involvement
 Some critics believe that merit goods (like museums, parks
and arts) should be provided by private organizations
instead of the government
 Critics of redistribution think that government assistance
discourages personal initiative, affects incentives, and harms
self-development
 Critics of government regulations argue that most
regulations raise prices and instead we should encourage
market solutions to problems such as pollution
The Federal Budget and National Debt
 The Budget Process – The goal of the budget process is to
balance what the government takes in with what it spends
 Budget Surplus – when the government takes in more than it
spends
 Budget Deficit - - when the government spends more than it
takes in
Federal Taxation and Spending
The Federal Budget Process
 Budget is done on a fiscal year not a calendar year
 Begins October 1 and ends September 30
 It takes 18 months to prepare the budget prior to its start
 Begins with President and Office of Management and Budget
making a plan
 Plan is then submitted to Congress by January where it is
examined
 Proposal is submitted by April 15 for debate
Budget Process
Begins with President and Office of Management and Budget making a plan
Plan is then submitted to Congress by January where it is examined
Congressional proposal is submitted by April 15 for debate
By September 25th the Congressional budget should be finalized and passed by
the House Of Representatives
During Fiscal year Agencies disburse funds
National Debt
 When a budget deficit occurs the government must raise funds
by borrowing money
 Deficit financing – government policy of spending more money
than it is able to being in through revenues
 Deficit financing is financed by selling government securities to
individuals, businesses and foreign governments