Survey section three

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  • Do you think this will work?
  • Answer: d
  • The White House estimates that it takes a total of 3 billion hours to comply with the tax code, or about 27 hours per taxpayer. Estimates of the cost of complying with the U.S. tax code top the $200 billion mark, not inclusive of enforcement and regulation. In other words, U.S. citizens spend nearly $200 billion in man hours essentially preparing their taxes. The U.S. tax code is up to nearly 55,000 PAGES in length.
  • Give the first article-Bush and Steel
  • Give the second article
  • Answer: c
  • Poverty rates in the US were falling before the launch of the “War on Poverty”. It has hovered around 10%.
    The U.S. poverty rate started falling before the government’s war on poverty. Data source: http://www.census.gov/hhes/www/poverty/poverty.html
  • Please note that the text includes a proposed “Economic Bill of Rights” as suggestions for accomplishing the objectives above. A separate Power Point presentation on this “Bill of Rights” is also included.
    10th amendment “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people. “ It limits the power of the federal government to those presented in the U.S. Constitution.
    Fifth Amendment. Life the 10th Amendment, it is a part of the Bill of Rights and it involves due process.
  • Amendment 5
  • Occupational Licensure
  • Survey section three

    1. 1. Chapter 3 Economic Progress and the Role of Government
    2. 2. Ten Elements of Clear Thinking about Economic Progress and the Role of Government 1) Government promotes economic progress by protecting the rights of individuals and supplying goods that cannot be provided through markets. 2) Allocation through political voting is fundamentally different from market allocation, and economic analysis indicates that the latter is more consistent with economic progress. 3) The costs of government are not only taxes. 4) Unless restrained by constitutional rules, specialinterest groups will use the democratic political process to fleece taxpayers and consumers.
    3. 3. Ten Elements of Clear Thinking about Economic Progress and the Role of Government 5) Unless restrained by constitutional rules, legislators will run budget deficits and spend excessively. 6) Government slows economic progress when it becomes heavily involved in trying to help some people at the expense of others. 7) The net gain to those receiving government transfers is less, and often substantially less, than the amount they receive.
    4. 4. Ten Elements of Clear Thinking about Economic Progress and the Role of Government 8) Central planning replaces markets with politics, which waste resources and retards economic progress. 9) Competition is just as important in government as in markets. 10) Constitutional rules that bring the political process and sound economics into harmony will promote economic progress.
    5. 5. Government Promotes Economic Progress by Government Promotes Economic Progress by Protecting the Rights of Individuals and Protecting the Rights of Individuals and Supplying Goods That Cannot Be Provided Supplying Goods That Cannot Be Provided Through Market Through Market
    6. 6. How does Government promote social cooperation and enhance its citizens’ economic welfare? 1) By providing people with protection for their lives, liberties, and properties (as long as the properties and liberties were acquired without force, fraud, or theft) and 2) By supplying a few select goods that have unusual characteristics that make them difficult to provide through markets. – The protective and productive functions of government.
    7. 7. Is Government Too Big? Is Government Too Big?
    8. 8. Protective Function • Protection of people and their property against aggressors • The enforcement of contracts • The avoidance of restrictions, regulations, and discriminatory taxes
    9. 9. Productive Function • Supplying to one, means supplying to others • Hard to restrict their consumption to paying customers. – Supplying public goods to the country • Public Defense • Public Parks
    10. 10. Public Good • Non-rivalry and non-excludability • Everyone can simultaneously obtain the benefit from a public good!! • One person’s benefit does not reduce the benefit available to others. • Because there is an inability to exclude creates a free-rider problem.
    11. 11. Free-Rider Problem • People can receive benefits from a public good without having to pay for it. • As a result, public goods tend to be unprofitable for any private firm that decides to produce and sell them.
    12. 12. Allocation Through Political Voting Allocation Through Political Voting Is Fundamentally Different from Is Fundamentally Different from Market Allocation, and Economic Market Allocation, and Economic Analysis Indicates That the Latter Is Analysis Indicates That the Latter Is More Consistent with Economic More Consistent with Economic Progress. Progress.
    13. 13. What is the political process • It is merely an alternative form of social organization • It is not a corrective device that can be counted on to provide a sound remedy when problems arise.
    14. 14. Democratic Government • • • Policies proposed by the government may or may not be productive. Policies favored by the voting majority do not necessarily promote economic progress. The benefits and costs faced by voters belonging to different interest groups are often disproportionate. Source: commonsenseeconomic.com
    15. 15. Unlike Democratic Governments, When Markets Are Competitive • Producers can not force consumers to buy their products. • They have incentives to undertake only productive activities. Source: commonsenseeconomic.com
    16. 16. Let’s Compare Democratic Governments and Markets 1. Majority rule provides the basis for government action, while market activity is base on mutual agreement and voluntary exchange. • The power to tax, makes it possible for the majority to coerce the minority • However, under the market conditions, the transaction does not happen unless all parties agree to the transaction Source: commonsenseeconomic.com
    17. 17. Let’s Compare Democratic Governments and Markets 2. There is little incentive for voters to be well informed about either candidates or issues. In a large number setting, an individual voter will not decide the outcome of an election. • Rational ignorance effect • In the market, consumers individually decide how to spend their money, if the choice is poor, then they are wasting their OWN money. The incentive is thus to do your research on the product you are buying!! Source: commonsenseeconomic.com
    18. 18. Let’s Compare Democratic Governments and Markets 3. The political process imposes the same option on everyone, while markets allow for diverse representation. • Government allocation fits a “one size fits all” • But markets allow individuals to receive the desired amount of the product Source: commonsenseeconomic.com
    19. 19. What Is Needed to Encourage Democratic Governments To Be Productive? • To reduce the likelihood that people can participate in government projects without paying, it is important to link benefits proportionately to costs. • A democratic majority vote does not guarantee the passage of productive proposals. • Supermajority support (75% of the voters) will increase the likelihood of passing productive projects. Source: commonsenseeconomic.com
    20. 20. The Costs of Government The Costs of Government Are Not Only Taxes Are Not Only Taxes
    21. 21. Which of the following is true of taxes? a. b. c. d. Taxes increase the volume of mutually advantageous exchanges. Tax increases are the primary cause of inflation. Business taxes generate government revenue without imposing a burden on consumers and households. Taxes drive a wedge between what buyers pay and what sellers receive. 21
    22. 22. What are costs? • The cost of any product is not only the monetary costs, but what we are giving up to get the product. • Government is no exception to this!! • Collective and Enforcement • Time, talent, and money
    23. 23. Three types of costs incurred when government levy taxes and provide goods and services 1. The loss of private sector output that could otherwise be produced 2. The cost of resources expended in tax collection and enforcement of government mandates 3. The cost of price distortions caused by taxes and borrowing
    24. 24. What is the cost of this??? http://knowledgecenter.csg.org/drupal/content/obama-renews-call-inf
    25. 25. How does taxes distort prices?? • Taxes alter consumption and production incentives. • Consider supply and demand. Taxes increase what consumers pay and reduce what sellers receive. They reduce the volume of exchanges and squeeze out some of the gains from trade. • Some exchanges will not occur because the tax wedge makes them disadvantageous. • Deadweight loss of taxation adds 9-16% above the costs of compliance and regulation.
    26. 26. Summary of Taxes • Taxes distort prices. • Taxes transfer income from individuals to the government. – Businesses do not pay taxes. Instead, they collect taxes from customers, employees and shareholders. • Politicians want to conceal the tax costs of their programs and make you “think” businesses are paying
    27. 27. Special-interest groups will Special-interest groups will use the democratic political use the democratic political process to fleece taxpayers process to fleece taxpayers and consumers and consumers
    28. 28. A Democratic Government • Can contribute to economic progress when it fills its protective and productive roles. • However, more than a majority rule and popular vote is needed to assure that it restricts itself to those roles. • Why? Incentives matter! Consider the following three examples.
    29. 29. The Power of Special Interests • • • Special interest groups will help politicians get elected through donations and getting workers to vote. While the majority of unorganized voters is harmed, there is little incentive to act in opposition. In varying degrees, all politicians cater to special interests. 29
    30. 30. Example 2: • “If a small but organized group cares a great deal about a certain government policy, while the majority is unorganized and apathetic, then the special interest often prevail.”*
    31. 31. Consider This “Sweet” Example • • • In 2000, the sugar lobby contributed $13 million to politicians. The government restricts sugar imports into the U.S. through quotas. The average U.S. consumer pays $20 per year in higher sugar prices while sugar growers gain about $1.9 billion. • IS THIS A SOUND GOVERNMENT PROGRAM? DISCUSS. 31
    32. 32. Example 3: Government Incentives • Log-rolling: implicit vote trading among legislators • They vote for programs that benefit the districts of other legislators in exchange for votes for their pet projects. • Federally funded dams, highways, housing projects, Veterans Administration hospitals, and job-training centers are often reflective of logrolling.
    33. 33. Question: Restrictions that limit sugar imports, subsidies for the construction of sports stadiums, and federal spending on programs like the construction of an indoor rain forest in Iowa all provide examples of government programs that, a. Are based on careful analysis of benefits relative to costs. b. Are designed to redistribute income from the rich to the poor. c. Reflect the political attractiveness of specialinterest issues. d. Promote the general welfare. 33
    34. 34. Unless restrained, legislators Unless restrained, legislators will run budget deficits and will run budget deficits and spend excessively spend excessively
    35. 35. The Attractiveness of Deficit Spending to Legislators • Budget Deficit: Government spending that exceeds revenues. Deficits are financed by borrowing. • Spending is attractive to legislators because it allows them to take credit for programs that benefit voters. • Taxes are unattractive because they impose visible costs on voters. • Thus, legislators tend to spend more than they are willing to tax.
    36. 36. The National Debt • The cumulative effect of all past budget deficits and surpluses of the federal government. • Check out the U.S. Debt. • The U.S. Treasury borrows funds by selling securities like U.S. Treasury Bills, Notes, and Bonds. • Borrowing makes the current cost of running the government less visible.
    37. 37. Is that all the debt?
    38. 38. Deficit Spending and the National Debt • Borrowing pushes the visible cost of running the government and policies into the future. • Bottom line. – Why continue spending when in a deficit? • Immediate benefits with deferred costs are politically attractive! • Deficit spending and public debt appear to transfer costs into the future when current politicians are no longer office.
    39. 39. Constitutional Changes That May Restrain Legislators • Require the federal government to balance its budget like most states. • Require a 2/3 or ¾ majority vote in both branches of Congress to fund deficit spending or increase its borrowing power. • Require that Congress only spends an amount equal to last year’s tax revenue.
    40. 40. Government Slows Economic Government Slows Economic Progress When It Becomes Progress When It Becomes Heavily Involved providing favors Heavily Involved providing favors to some at the expense of others to some at the expense of others
    41. 41. Two ways individuals can acquire wealth • Production • Plunder
    42. 42. Production • Production is when people get ahead by producing goods and service and earn income from it
    43. 43. Plundering • Plunder what others have produced. • • It fails to generate additional income It also consumes resources- decreasing the wealth to society • The gain of one is a loss to another
    44. 44. Should government help Should government help family farms? family farms?
    45. 45. What about sport teams? What about sport teams?
    46. 46. How does the government get involved in these actions? • A government can act as a neutral force • • Protect property rights Enforce contracts
    47. 47. The Net Gain to Those Receiving The Net Gain to Those Receiving Government Transfers Is Less, Government Transfers Is Less, and Often Substantially Less, than and Often Substantially Less, than the Amount They Receive the Amount They Receive
    48. 48. Income Transfers • • It is difficult to improve people’s well-being through income transfers when benefits are not attached to costs. The unintended consequences of secondary effects can get in the way.
    49. 49. Why weren’t the income transfers Why weren’t the income transfers more effective? more effective?
    50. 50. Another example Another example
    51. 51. Is income something that people Is income something that people produce and earn? produce and earn?
    52. 52. Unintended Consequences of income transfers 1. Reduce incentives of both taxpayer and transfer recipient to earn income • “Free” income reduces work effort and innovation among transfer beneficiaries. • Increased tax burdens stifle incentives to produce and earn more among persons earning income and paying taxes. 1. Competition for transfers erodes most of the long-term gain of the targeted beneficiaries. • When qualification requirements must be met, resources and potential production are wasted as individuals seek to qualify for the transfers.
    53. 53. Unintended Consequences of income transfers 3. Protection from adversity arising from imprudent decisions makes people more likely to increase the likelihood of that adversity. • • Consequences of adversity become less severe. Potential recipients have less incentive to avoid adversity.
    54. 54. The “War on Poverty” Illustrates These Points 35% 30% 25% “War” 20% 15% 10% 5% 0% 1947 1959 1965 1975 1985 1995 2005 54
    55. 55. Can we apply this to the bank bailout? Can we apply this to the bank bailout?
    56. 56. Central planning replaces markets Central planning replaces markets with politics, which wastes with politics, which wastes resources and retards economic resources and retards economic progress. progress.
    57. 57. The “Man of System” “The man of system is apt to be very wise to his own conceit. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board.” -Adam Smith 57
    58. 58. Aren’t elected officials and government Aren’t elected officials and government experts more likely to represent the “general experts more likely to represent the “general welfare” of the people than business welfare” of the people than business entrepreneurs? entrepreneurs?
    59. 59. Five Major reasons why central planning will almost surely do more damage than good 1) Central planning merely substitutes politics for market verdicts 2) The incentive of government-operated firms to keep costs low, be innovative, and efficiently supply goods is weak. 3) There is every reason to believe that investors risking their own money will make better investment choices than central planners spending the money of taxpayers
    60. 60. Five Major reasons why central planning will almost surely do more damage than good 4) The efficiency of government spending will also be undermined because the budget of an unconstrained government is something like a common pool resource. 5) There is no way that central planners can acquire enough information to create, maintain, and constantly update a plan that makes sense.
    61. 61. Central planning merely substitutes politics for market verdicts • Subsidies and investment funds disbursed by planners are influenced by political considerations. • “Old” firms tend to be favored over “new”, growth-oriented firms. • “Pork barrel” projects are still pursued.
    62. 62. Example of Pork Barrel Spending Example of Pork Barrel Spending
    63. 63. The incentive of government-operated firms to keep costs low, be innovative, and supply goods efficiently is weak. • Boosting efficiency or lowering costs generate little political gain. • They will be motivated to pursue a larger budget. • Per-unit costs rise as increased inefficiencies get built into the political allocation.
    64. 64. Investors risking their own money will make better investment choices than central planners spending the money of taxpayers. • Private investors bear the consequences of poor decisions directly but central planners do not. • Private investors have a strong incentive to increase productivity and keep costs low. In contrast, political rather economic considerations are more important for central planners.
    65. 65. There is no way that central planners can acquire enough information to create, maintain, and constantly update a plan that makes sense. • Market prices generally channel information quickly and accurately to both producers and consumers. On the other hand a political process, particularly one with checks and balances like those found in the U.S., will respond slowly and often in a contradictory manner.
    66. 66. Competition Is Just As Important in Competition Is Just As Important in Government As in Markets Government As in Markets
    67. 67. Government & Competition 1. Leaders of public sector firms have little incentive to cut costs or boost performance when there is little competition. a. Inefficient programs are permitted to linger. b. Failure to achieve goals is often rewarded by increased funding. Consider increased funding in police departments with higher crime rates. 2. In the market economy, profits and losses register performance. Inefficient producers are weeded out and efficient ones are rewarded. There is no parallel in the centralized government.
    68. 68. Government & Competition 3.Increased competition among decentralized government units or between the government and private sector creates incentives for government officials to work productively, seek efficiency, cut costs and innovate. 4. Citizens with differing preferences and views about government activities can vote with their feet in a decentralized system; a centralized system does not permit this.
    69. 69. Constitutional Rules That Bring the Constitutional Rules That Bring the Political Process and Sound Economics Political Process and Sound Economics into Harmony Will Promote Economic into Harmony Will Promote Economic Progress Progress
    70. 70. Constitutional Checks • The scope of government must be limited. • An unrestrained government results in the fleecing of citizens. • Constitutional checks: – 10th Amendment – 5th Amendment – http://score.rims.k12.ca.us 70
    71. 71. A Positive Program for Prosperity: 7 Constitutional Suggestions 1. No government shall use its regulatory powers to take private property, either partially or in its entirety, for public use without paying the owner the full market value of the property taken. http://www.usconstitution.net/xconst_Am5.html 71
    72. 72. A Positive Program for Prosperity: 7 Constitutional Suggestions 2. The right of individuals to compete in a business or profession and/or buy and sell legally tradable goods and services at mutually acceptable terms shall not be infringed by Congress or any of the States.[i] 72
    73. 73. A Positive Program for Prosperity: 7 Constitutional Suggestions 3. Congress shall not levy taxes or impose quotas on either imports or exports. 4. A three-fourths approval of both Houses of Congress shall be required for all expenditure programs of the federal government. At least two-thirds approval of the legislative branches of state government shall be required for the approval of expenditures by state governments. 73
    74. 74. A Positive Program for Prosperity: 7 Constitutional Suggestions 5. A three-fourths approval of both Houses of Congress shall be required before the federal government is permitted to borrow any funds to finance a deficit in its annual budget. 74
    75. 75. A Positive Program for Prosperity: 7 Constitutional Suggestions 6. A three-fourths approval of both Houses of Congress shall be required for the federal government to mandate any expenditures by either state governments or private business firms. 75
    76. 76. A Positive Program for Prosperity: 7 Constitutional Suggestions 7. The function of the Federal Reserve System (Fed) is to maintain the value of the currency and establish a stable price level. If the price level either increases or decreases by more than 4 percent annually during two consecutive years, all Governors of the Federal Reserve System shall be required to submit their resignations. 76

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