Download 11 TCI Econ

Government and the
Economy
Chapter 11
Essential Question:
How should the U.S. government carry out its economic roles?
The government, the economy, and you
• Laissez-faire economics – government should stay out of the
economy…let market forces (supply & demand) run it.
• Thomas Jefferson – “The gov’t that governs least, governs best.”
• Tea party – Says to the gov’t, “Just leave me alone.”
• But, gov’t is everywhere (read intro p207-208)
• Can gov’t get involved in economy? We must look at the…
• …Constitution:
• Gov’t can: tax, “provide for the general welfare”, borrow,
regulate interstate & foreign trade, handle bankruptcy, coin $,
set weights/measures, handle patents & inventions
• So, gov’t sets regulations – rules set/enforced by the government
Property rights
• We value private property in America. It gives incentives to…
• …work hard and be productive to earn things.
• Compare this to a communist country – what your
earn/make goes to the government, not you.
• Government protects property rights…
• Law protects if someone takes from you
• U.S. Patent and Trademark office protects “intellectual
property”
• Gov’t can also TAKE private property
• Eminent Domain (Fifth Amendment) – gov’t can take
private property if it’s “for public use”. Think of a highway
going through or widening and a house is in the way.
Regulation
• We value private property & gov’t leaving us alone, but…
• …the gov’t regulates us, our property, and businesses.
• Example: gov’t ensures there is competition (not a monopoly).
• Gov’t forbids/regulates…
• Price fixing – “competitors” agree on a price
• Bid rigging – instead of competing bids, they work together to bid low
• Market division – agree to split the market, like splitting areas
• Mergers – we don’t want them to merge, b/c we’ll get too few
competitors (think airlines, phone companies—there’s only a few right
now, if they merged there would be VERY few)
Good & Bad of Regulation
• Good
• Helps with competition
• Protection (think FDIC and insurance of
deposits in banks)
• Safety (think seatbelts, EXIT signs)
• Bad
• Businesses say many regulations are
unnecessary; they get in the way
• Deregulation sometimes results. It’s
scaling back the regulations (it’s a hot
topic between Democrats and
Republicans).
Externalities & common goods
• Externalities – extra or spillover effects of production/consumption
• Think pollution or trash
• Gov’t regulates externalities
• Command-and-control policies – simply “thou shalt not” rules
• Market-based policies – are preferred b/c they try to put incentives to
work, like…
• Setting a fee per garbage bag (incentive is to make less trash)
• Setting an “up-to” limit on pollution (OK to pollute up to a level)
• Giving $, called subsidies, to encourage something
• Key here: $ amounts put to use
Commons goods
• Some things are not privately owned, but are common, like…
• …air, fish in the ocean, stone crabs
• Tragedy of the commons – resources can be easily overused and
ruined (think cows in the common pasture)
• It’s hard for gov’t to regulate these things; community groups might
be better at it.