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Section 3 The Economics of Markets and Government 1 Political Vs. Market Choice There is usually a huge difference between the value created by goods and services provided through the government and those obtained through the market. Lets do an activity to examine this difference! 2 The Four Ways to Spend Money! 3 The Four Ways to Spend Money! You spend your own money on yourself You spend somebody else’s money on yourself You spend your own money on somebody else You spend somebody else’s money on somebody else 4 Economic Freedom! Economic Freedom consists of: 1. Secure private property rights and even handed enforcement of contracts 2. Minimal government regulation leading to competitive markets 3. Market versus government allocation of capital 4. Stable monetary environment 5. Low marginal tax rates 6. Minimal barriers to trade 5 The Problems with Collective Decision Making 1. 2. 3. 4. Rational Ignorance Effect Special Interest Effect and Rent-Seeking The Absence of the Profit Motive The Short Sightedness Effect 6 The Short-Sightedness Effect and Debt Politicians tend to favor policies that have current and visible benefits as long as the costs are hard to identify and far out into the future (even if the costs outweigh the benefits): This can lead to the accumulation of significant amounts of debt: http://www.usdebtclock.org/ 7 70% 60% 50% 40% 30% 20% Net Federal Debt as a Percent of GDP Net Federal Debt as a Percent of GDP 90% 80% 10% 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 0% 8 End of Section 3….Any Questions? Thank You! 9