Download Chapter 10 THE NEED FOR GOVERNMENT

Lectures 18 to 20
Chapter 10 THE NEED FOR
GOVERNMENT
N.B. very different coverage to that in
book; following EC2020 much more
closely
1 Rationale or Functions (covered in
whole EC3060 course)
• Rule setter and referee: football
analogy (Rule of Law, 3.1)
1
• Infrastructure (Chapter 4)
• Establishing market: competition
and information (several chapters)
• Efficiency: public goods (Chapter 4)
• Externalities
and
regulation
(Chapter 5)
• Distribution (1.2 and Chapters 7 and
8)
2 Levels (EU, G20, WTO) of
Government (not covered at all in
book)
Global: Why?
• Rules of ‘engagement’ for trade
• Rules
of
engagement
for
international
banking
and
investment
• Safety/health standards: infections,
viruses, airlines, food
2
• Externalities global in nature, for
example, climate change
• Migration, economic and political
• Security and defence
• Inequality: otherwise instability,
migration
• Who polices oceans and space?
3
• No world government though to
enforce and regulate.
• Only peer pressure
• Legal force though at EU level
3 Public Expenditure (Table 10.3)
Consumption (e.g. education, health)
Legal system and police/army)
• Education: socialization, equality,
failure capital markets
• Health: externalities (e.g. infectious
diseases or costs to others), equity,
informational failures
4
Transfers, Subsidies and Interest
payments (e.g. pensions, sickness and
unemployment benefits)
• Distributional effects and security
Investment (e.g. roads, energy, internet
broadband, etc)
• Effective
cost-benefit
analysis
needed (see earlier)
4 Actual Size of Government:
Economic and Political Factors (10.1A)
5
Trends and International Comparisons
• Measure = PSE/GDP (Table 10.3)
• Transfers?
All
levels
of
Government?
What Causes PSE/GDP to vary?
• Long-term historical picture (see
10.1.A, especially Table 10.1))
• Growth in last 40 Years
‘Legitimate’ Causes
• Changes in PSE AND changes in GDP
• Wagner’s ‘law’ (pp 744 to 747): this
arises from genuine demand
factors. In other words voters want
increase to take place
• Baumol’s ‘disease’ (not covered in
book)
6
• Demography/age
distribution,
female labour force participation
• Trade (skip)
‘Political’/Manipulative
• Down’s ‘paradox’: role of interest
groups
• Civil servants and bureaucracy
• Electoral cycle
• Fiscal illusion, partly arising from
new revenue sources (book very
confused on this)
Checks (10.1D)
• Constitutional
• Overrides day to day electoral
politics
7
• How is Constitution drawn up
though: best if it applies only from
several years after written?
• Ulysses and sirens ‘story’ (p. 762).
Applies
also
to
hyperbolic
discounting
• Free press (FoI), Treasuries,
Auditors
• Fiscal Councils
• In future, more EU/IMF surveillance.
5 Broad ‘Philosophical’ Approaches
(10.1.C)
• Hobbes on nature of people and
government. A Leviathan or
benevolent Dictator needed.
• Power absolute, permanent and
hereditary!
• Driving concern security and peace
8
• Hobbes and Book of Samuel I (p.
758)
• Relevant in Syria, Libya, Iraq?
• Locke: emphasis on individual
freedom here
• People basically civilized rather than
anarchic and murderous
Section 10.2, and 10.3.A and 10.3.B:
Skip as covered in earlier chapter
• ‘Right’ v ‘Left’ Debate (10.3C)
• How is each side defined? Is it
relevant today though? Or does it
matter?
• Terms still used though. Do you find
them helpful?
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5 Conclusion
• Is there an optimal size of
Government?
• Government a major ‘player’ in all
societies, especially when a crisis
• Government and competitiveness
of nations
• Different attitudes to role of state,
both over time and between
countries
• Huge
global
interdependency
implies need for global governance.
Neglected in book mostly
• Most advanced is at EU level. US in
past a series of separate states also
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