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THE ECONOMICS OF GOVERNMENT SPENDING 10-1 THE ECONOMICS OF GOVERNMENT SPENDING Why do we spend so much money? Has it always been this way? https://www.youtube.com/watch?v=T5SFXgGTnAY https://www.youtube.com/watch?v=3ugDU2qNcyg THE ECONOMICS OF GOVERNMENT SPENDING Politicians can’t so no Changing ideas of government roles THE ECONOMICS OF GOVERNMENT SPENDING Pork Barrel Spending Pork = earmarks (line item budget expenditure that circumvents normal budget procedures and benefits a small number of people or businesses) Bad for the economy? Benefits to a few at the cost of many? Good for economy? Fund innovative/forward-thinking projects GOVERNMENT SPENDING IN PERSPECTIVE Public Sector v. Private Sector? Pre Great Depression? SPENDING SINCE THE 1930S Change in public opinion New Deal TVA WWII War production Ever since? Continued to grow 1960 = 23% GDP 2012 = +33% GDP SPENDING SINCE THE 1930S How many goods/services should government provide? What should be provided by the private sector? Why do you think some people object to the government providing certain goods and services? TWO TYPES OF SPENDING Goods/services Tanks, planes, ships, space shuttles, office buildings, land for parks, stuff for schools, etc. Utilities Employees’ wages/salaries/benefits Transfer payment—payment the govt receives no goods/services in return Social Security, unemployment, welfare, etc. TWO TYPES OF SPENDING Transfer payment Grant-in-aid—transfer payment from one level of government to another that does not involve compensation Highway grants, construction of new pub schools (sometimes) Could be partial grant Why do states rely on federal funds for projects like highway construction? IMPACT OF GOVERNMENT SPENDING Resource allocation Distribution of income Private sector production Tax burden AFFECTING RESOURCE ALLOCATION Govt spends $ on missile systems in rural areas rather than welfare in urban = stimulates econ in rural Grants/subsidies in agriculture affect production (and removal of subsidies) No Child Left Behind = more time spent on math and reading, less time on other subjects REDISTRIBUTING INCOME Who receives financial support from govt? Buy military whatever from Factory A rather than Factory B affects communities Money to aid 3rd world countries rather than domestic problems, etc COMPETING WITH THE PRIVATE SECTOR Public college v. Private Cost difference due to subsidies Health care VA Affordable Care Act INCREASING THE TAX BURDEN More govt spending = more taxes Toss up between benefits provided by government and reducing taxes Govt spending (at all levels) = 1/3 GDP Many people want more govt spending (which inevitably would mean higher taxes)