Some goods that many people take for granted are considered public goods, in that they are nonrival and nonexcludable. Tyler Cowen discusses how the inability to charge free-riders for public goods, like national defense, often lead to the government providing the good because there is no private firm who would be willing to produce the good. Cowen also discusses how certain goods may be better off if they were provided by the private sector with a strong allocation of property rights. There are imperfections to both the public and private solution in many cases, since there may be market failures or failures to negotiate that the government might handle better. Situations where there are externalities or natural monopolies are also prime circumstances for government regulation.
Government activities are funded through the revenues gained from local, state, and federal taxes. Each of the different levels of taxation is used to pay for different government goods. Local taxes, such as property taxes, pay for things like public primary and secondary schools. State taxes help fund state roadways, state parks, and subsidize public university education (such as JMU). Federal taxes pay for national defense, Medicare, and interstate highways. In any case, if one level of government pays for a good that you use without paying your taxes, you are reaping a benefit without incurring an appropriate cost.
Politicians are currently jostling back and forth on either raising taxes or cutting spending. Elizabeth Warren, who is running for Senate in Massachusetts, recently stated:
There is nobody in this country who got rich on his own. Nobody. You built a factory out there? Good for you. But I want to be clear: you moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did. Now look, you built a factory and it turned into something terrific, or a great idea? God bless. Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.
President Obama echoed this statement when he said:
If you were successful, somebody along the line gave you some help. There was a great teacher somewhere in your life. Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you’ve got a business, you didn’t build that. Somebody else made that happen.”
Russ Roberts, an economist at George Mason University in Virginia, responded to Ms. Warren’s comments saying that the government should focus more on provision of public goods. Dr. Roberts says the government’s provision of public education is so bad that people should ask for refunds from the government, and notes that many of the governments subsidies for agricultural goods and fuels are not actually providing public goods. Presidential candidate Mitt Romney and other Repubicans took to the GOP convention with speeches focused on the “We Built That!” theme, criticizing President Obama’s statement.
You can learn more about government programs, including both taxes and spending by looking at it a few different ways. The Washington Post put together a nice display showing growth (or shrinkage) in taxes and spending since President Reagan through today. In this graphic you can see that the budget deficit was only $300 billion in 2007, the last year before the crisis and recession began. Today, the government anticipates a deficit of $1.1 trillion. You should remember however, that this deficit is at the federal level only. The Center for Budget Policies and Priorities does a nice breakdown of where government spending goes today, but balancing the budget will continue to be a very difficult task. The Concord Coalition has created a tool to help you think about how difficult it might be to balance the budget. You can try to do it yourself, and while doing so try to think of the political difficulties of raising taxes or cutting spending on any individual group.
Questions you might want to answer:
I would like you to think about the government’s role in the economy when it comes to both taxes and spending. DO NOT try to answer all of these questions, just focus on one topic. Also, try to think about your comment from different angles. To write a brief comment, read the previous comments, compose your thought in a Word document, and paste it in the comment box below. The more original and factually supported your comment, the better your grade will be. Finally, your comment will appear ONLY AFTER IT IS APPROVED. Please don’t email me asking where it is, it often takes a while for me to get to it.
- Do you agree with Ms. Warren/President Obama or Dr. Roberts regarding the government’s provision of certain goods? If you agree with Ms. Warren/President Obama or Dr. Roberts cite a concrete example, giving facts and numbers supporting your opinion. In particular, you might want to focus on one of the following:
- Education: Do you believe the government should play a role in providing public education? At which level should most of this spending and planning occur? If you think education should be privately provided, and not subsidized or paid for by the government, how would most people be educated? Think of societies where all education is privately provided and compare them to the U.S.? Should the federal government have more or less control over the education system?
- Taxes: Should the government try to manipulate prices through the tax code? By giving subsidies to oil, gas, and food producers, consumers are able to pay lower prices for their goods. Is this a proper way of motivating consumption and trade?
- Defense: Should the government cut spending on the military? If so, how do you propose the government provides protection to their citizens. What have some said about how our safety would be harmed if less were spent on the military.
- Roads and Construction: What should the government do about trying to increase spending on roads and bridges? Should the government continue to provide these goods to the public? Why or why not? Are there times when the government should consider privatizing roads and bridges?
- Regulations: Do you believe regulations like fire codes should be implemented by the government? Or should we let the free market decide how many exits buildings have and the number of smoke detectors in a building. Would a voluntary regulation make any difference in the economy? This example certainly extends beyond fire codes to include many other business regulations. Do you think the government should end regulations on environmental issues to help job (and therefore revenue) growth?