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Civics
"Democracy is the worst form of government except for all those others that
have been tried." -Winston Churchill
What Are the Roles Of Government?
The political structure wraps around the economic system in what
is called the political economy. The constitutional framework,
elected officials, political parties, special interest groups, the
media, the bureaucracy and citizens compose important elements
of the political economy. Their influence and power can be used to
advance images of equity and efficiency in society. If personal
liberty is favored, the political structure grants economic freedom
to capitalists to pursue their interests.
Capitalism permits
inequalities while pursuing optimal production from scarce
resources. If paternalist/materialistic decision-making is favored,
socialism is applied to a definition of justice, despite potentially
insufficient resource utilization.
America is a mixed economic system, dominated by
capitalism where normally business firms organize resources to
cater to customers in various marketplaces. Yet the political
system allows a socialist influence through government programs
like education, welfare, and urban transportation. Federal, state
and local governments provide about one-third of the total national
output, while government controls on capitalism affect the costs of
production for many goods and services.
Government's role is observed fivefold in America’s mixed
economy. First, the government regulates economic activity.
Second, the government provides public goods that markets would
otherwise fail to produce efficiently. Third, the government
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redistributes income through transfer payments. Fourth, the
government attempts to stabilize the aggregate economy through
fiscal policy or through monetary policy of the banking system by
the Federal Reserve (a government agency).
Fifth, the
government collects taxes and borrows money to acquire the
necessary funds to finance its operations. We will inspect most of
these roles in subsequent chapters.
Key Point: The roles of government are observed five ways and
are determined within the political economy.
What Are Political Systems?
At the polar extremes, political systems are either democratic or
authoritarian. A democratic system provides individual autonomy
with political and economic freedom. An authoritative system
allows little of these things. Instead of tolerance for diversity of
opinion, political power is concentrated either in a traditional
monarchy, a dictatorship, or an oligarchy of elite rulers.
Communism is another type of authoritative system, where only
one political party has a set of leaders to rule a country.
Freedom loving people prefer democracy, which allows
various forms of political and economic equality, active
participation of citizens and majority rule. There are two basic
forms of democracy. A direct democracy involves citizens voting
on issues, while an indirect democracy utilizes elected officials to
represent the interests of citizens. In America, direct democracy is
seen at the local and state levels through citizens’ initiatives, but
indirect democracy is the norm for local, state and federal
governments.
Democracies rely on a constitutional framework that
guarantees certain rights of citizens and provides a government
structure to facilitate the political process. There are two primary
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constitutional frameworks - parliamentary and presidential. The
parliamentary system, such as the one found in the United
Kingdom, allows citizens to elect members of Parliament. A
majority party is determined by the count of members within
parliament. In-turn, the members of the majority choose the Prime
Minister who leads the government. Political power is unified
between the head of state and majority party of parliament; public
policy decision-making is said to be simpler.
The presidential system separates powers between
branches of government, where the President is not elected by
members of a parliament, but by a vote of citizens in every state.
What otherwise could be called parliament is instead called
Congress in America, where representatives are elected by
citizens. The President may not be from the same political party
as the majority of representatives in Congress. Powers are
separated and political decision-making is more cumbersome.
America’s constitution begins with these words, “We the
people of the United States, in order to form a more perfect union,
establish justice, insure domestic tranquility, provide for the
common defense, promote the general welfare, and secure the
blessings of liberty to ourselves and our posterity, do ordain and
establish this Constitution for the United States of America.” The
founders believed that a presidential constitutional framework
would best achieve the aforementioned goals.
They were
concerned about authoritative governance, wanted majority rule,
representative government and the rule of law protecting citizens
from politics. They also wanted to disperse political authority via a
separation of powers between and among officials and
federal/state governments.
America was founded as and continues to be a
democratic-republic. That is, government decision-making and
policy is made with the consent of the governed. Within the
constitution are citizen protections assuring freedom to own
property, enter into private contracts and pursue their own
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personal, political and economic interests. In addition, rights
involving freedom of religion, speech, assembly, petition, and the
press are allowed. The Bill of Rights, the first ten amendments to
the constitution, guarantees these most basic rights. Twentyseven amendments have been added since the constitution was
approved in 1787. The constitution and its amendments therefore
established that America has a rule of law juxtaposed with majority
rule through its democratic process. The idea is that majority rule
cannot necessarily supplant the rule of law. For example, the
majority, through their elected representatives, cannot determine
your religious practices, nor should it confiscate all of your
property.
Key Point: A democratic republic allows for both majority rule and
the rule of law.
How Is American Government Organized?
One of three branches of the American federal government, the
judicial branch, determines whether decisions and actions by
government, business firms and individuals are consistent with the
constitution. At the highest level is the Supreme Court, where nine
justices (including one Chief Justice) decide the merits of disputes
between parties. The nine are appointed by the President and
confirmed to life appointments by the Senate, a branch of the
Congress. Beneath the Supreme Court are Appellate and District
Courts that handle matters not yet deemed worthy of review by the
supreme justices.
Congress, the legislative branch of government, is
bicameral, containing both a Senate and a House of
Representatives. Senators from each of fifty states are elected to
six-year terms of office; there are two from each state. The House
of Representatives has 435 Representatives, one elected per
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district. The districts are allocated by states in proportion to their
share of the national population. Representatives serve two-year
terms. Both Senators and Representatives may run for reelection.
Each chamber of the Congress has a leader. The person who is
principally in charge of the Senate is called the Majority Leader.
The Speaker of the House, who comes from the majority political
party, heads the House.
Congress has the power to set budgets, tax, spend,
declare war, regulate interstate commerce and make laws
consistent with the constitution. Since Congress is bicameral, the
decision-making on these issues is not easy. A bill becomes law
after thorough review by many elected officials. A bill has to be
approved by each chamber of Congress. The process involves
committees of representatives scrutinizing, amending and
approving the legislation for full consideration of all members in
their chamber. Invariably the House version of a bill will be
different than a Senate version, and a conference committee of
representatives from both chambers will be formed to unify the bill
into one piece of legislation for approval by a vote of both
chambers.
The bill becomes law when the President signs it, but the
President may reject it with a veto. The Congress can override the
veto with a two-thirds vote of both branches. This is difficult to do.
Since a presidential signature is important, the President has
ample power to persuade Congress toward legislation favored by
the executive branch of the government. Besides being able to
influence and submit legislation for consideration by Congress, the
President is responsible for carrying out laws, directing agencies,
negotiating foreign treaties, nominating judges and acting as
commander in chief of the armed forces. The President has a
Cabinet who head important administrative departments of the
government.
The President is elected to a four-year term and may be
reelected once. Citizens of each state vote for a presidential
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candidate, represented by electors who in-turn vote for the
candidate via an Electoral College. As the 2000 election of G.W.
Bush proved, the election is an indirect democratic process
through the states. President Bush won the election by winning
the majority of electoral votes but not a majority of the nation’s
popular vote.
America’s political system is organized in part to respect
sovereignty of states. Smaller states with fewer voters have
greater influence in presidential elections because the Electoral
College system provides two electors (just for being a state) and
the additional electors in proportion to its population. The total
number of electors for a state is equivalent to the number of
congressional members from both the House and Senate for that
state. Note that the Senate representation in Congress is different
than House representation as well. There are two senators from
large populated states like California, and still two senators from
smaller states like Wyoming. However, the House representation
is proportional to the population, where California contains vastly
more representatives than Wyoming.
Federalism is the word that describes America’s political
system of central government and states. Power is shared with
the states through electing the President and members of
Congress. In addition, the constitution empowers states to have
their own constitutions, governors, legislators and rule of law as
long as they are consistent with the principles of the national
constitution. In federalism, the power is shared with the states, but
federal power is superior. This is different that a confederate
approach to government, where state power is superior to the
national government.
Key Point: Political power is separated through three branches of
government and federalism between nation and states.
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4
Ideology
“Everyone is entitled to his own opinion, but not his own facts.”
-Daniel Patrick Moynihan
Does Economics Have an Opinion?
Labels that tag economics with a particular political doctrine are
not very helpful. The discipline on various occasions has been
branded alternatively liberal, conservative or whatever is between.
If an economist contends that an increase in wages is predictably
appropriate for the labor market, then she may be labeled as a
person with a liberal ideology. If the same economist argues that
the most effective method of increasing wages is greater demand
for what labor produces, then she might be considered a
conservative. Labeling her work does not help her develop more
accurate perspectives, but it serves to categorize it according to
commonly understood worldviews.
Economics is not liberal or conservative as a general rule,
but, generally, a positive science. It does not normally follow an
ideological agenda but instead attempts to determine principles
free of values. Economists ask the question ‘what is?’ For
example, what is the expected outcome upon software engineers
when the demand for new generation software increases? Under
such a scenario, an economist would likely find that software
engineers’ wages tend to rise because their employment service
became more significant to others. The example demonstrates
how positive economics provide a clear presentation of how
principles are derived. In this case, a greater demand for software
leads to an increase in wages of the software engineers. By
delineating the relationship between software demand and wages,
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the outcome is better understood.
The outcome may be
supported or possibly refuted based upon the criterion presented.
Personal values need not enter the analysis.
Economists themselves certainly have personal values
just like other people. However, the best economic science is one
that attempts to be value free.
Nonetheless, it is almost
impossible to be completely objective. Simply selecting areas of
investigation is sometimes related to an economist’s values.
Should the economist investigate the wages of software engineers
or should she instead examine the market for lesser skilled
workers? Empathy for lesser skilled workers may influence the
choice. Once more, personal values might shade the framework
of her study. For example, affection to families of despair may
lead to a rigorous examination of whether or not firms pay
competitive wages (as opposed to understanding whether or not
workers are productive).
Another form of value laden economic analysis involves
the economist attempting to understand what ought to be. This is
very much normative analysis, and not positive economics. It is
unashamedly overlaying personal values within the economic
analysis. For example, an economist might attempt to solve the
problem – what ought to be the wage scale of lesser skilled
workers? Once such a problem is solved, the economist can also
lend support by providing predictions concerning the policy goals.
A doubling of wages for lesser skilled workers by government
decree may be the objective. However, economics would predict
that employment opportunities would diminish because firms
would have to contend with higher payrolls.
Expressing values is not wrong.
Values are very
important and many economists find it necessary to express their
values. (Read carefully and understand that I occasionally do
this.) However, it is not really honest to do this in a stealth
manner, where positive economics is claimed but normative
economics is provided. (My expressed values are especially
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noticeable when I use the word ‘should’ in some of the sentences
of this book.)
Key Point: Positive economics involves determining ‘what is’, while
normative economics contains personal values deciding ‘what
ought to be.’
What Does The Public Value?
Economists’ personal values are not necessarily more interesting
or important than public values. After all, public values ultimately
impact the benefits and costs of individual, business and
government decisions. Government decision-making is often
explained by the values of politicians, bureaucrats and special
interest groups. Sometimes policies seem to go in opposite
directions. For example, positive analysis unveiled a conflict in
government policy with regard to tobacco growers. Agricultural
policy had promoted tobacco farming by mechanisms that helped
support the price of tobacco at higher than free market levels. At
the same time, government had crusaded against the tobacco
industry with litigation seeking monetary damages from the
manufacturers of cigarettes. Positive economics would point-out
the conflict in policies and address potential solutions.
The simple explanation for conflicting policies is that
government decision-making appears to be irrational, inconsistent
and without clear purpose. This is certainly true from a macroperspective. However, from the micro-perspective, policy conflicts
may be explained by the diversity of values among the parties who
affect the decisions.
Choices made within government are
influenced differently by different people. The chair of the
Agriculture Committee that affects tobacco farm prices has
different opinions than the Attorney General who pursues legal
action.
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Completely uniform public values do not seem to exist.
Certainly, there are some that are nearly universal – most
Americans value the liberties provided by the Bill of Rights such as
freedom of speech. However, some liberty rights are very much in
conflict.
For example, the Second Amendment assures
Americans the right to bear arms. Some people view this as the
right of law-abiding citizens to protect their property, while others
see the Second Amendment as a means for violent people to
commit crimes. More debatable are values that transcend the
constitutional framework.
What goods and services should
government provide? Is a strong national defense necessary?
Should the government redistribute wealth and income? Are laws
limiting individual freedom to choose necessary? These are
questions that have been debated for centuries. Yet, a consensus
has not been found because of the diversity of opinions among
people.
Cultural heritage, intellectual exposure and life experience
determines individual values. Culture is multidimensional by itself.
For example, one aspect is religion. Most people claim to believe
in God, but the diversity of faith is seen in the many religions within
America. This is true within the dominant Christian faith. There
are many denominations, but more striking is the intensity of
commitment. Observed are evangelicals, casual church attendees
and people who claim but do not practice Christianity. Intellectual
exposure has many aspects as well. For example, the so-called
cultural revolution of the infamous 1960s certainly transformed
many college students; where later some became professors
teaching those values to a new generation. Finally, life experience
is certainly the most diverse. Each person lives and interacts with
families, friends, acquaintances and even adversaries.
For
example, a personal encounter with a street corner beggar may
affect individual attitude toward the poor. The beggar could have
been truly needy due to unforeseen circumstances, or instead
someone able but unwilling to work. Depending upon the
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perception of the beggar, the individual may develop a sweeping
generalization about the circumstances of street people and public
policy that seems fitting for their situation.
Key Point: Public Values are difficult to identify in the aggregate
because they are composed of diverse individual values.
Are There Different Visions of Reality?
Different values often lead to different opinions concerning public
policy. However, people of similar values also differ about political
solutions to problems. For example, most Americans value an
economy designed to promote growth and job opportunities. For
some, such an economy requires minimal government
involvement – allowing entrepreneurs the freedom to develop jobcreating businesses. Others contend that government should take
an active role in providing jobs to guarantee full employment.
Therefore, not values, but different visions of reality, concerning
the framework of society and the characteristics of individuals
within it, explain the differences in opinion.
Mental constructs that people have about themselves are
fundamental in understanding the differences that values cannot
explain. There are sharply different ideas concerning the truth
about human tendencies. The various views may or may not
seem correct, but they certainly provide the basis in which many
derive their political opinion. Although views are diverse, there
might be two primary visions of behavior that help define political
ideology – the constrained and the unconstrained visions.
One vision sees humans constrained by their present
intellectual ability and the amount of time to apply what they know.
Furthermore, humans have a tendency to strongly focus on
themselves, and may behave in a manner conflicting with
economic progress. Therefore, a nation is unable to progress
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unless its economic system and legal framework mitigate human
failings. For example, the US Constitution disposes political power
among the branches of government. It does not allow central
power to rest with any individual for fear of self-serving political
policy. Besides decentralized political power, checks on selfcentered individual behavior come from families, religious and
moral teaching, and the interaction of buyers and sellers in the
marketplace.
The second primary view of reality is that society is
unconstrained to do well, while people (and especially their
leaders) are basically loving, concerned citizens. People are able
to control self-interest for the betterment of the society’s general
interest. The economic system should be arranged to harness the
collective goodwill that has unlimited potential for improving
society. People with unconstrained vision often conclude that
society can find identifiable common purpose. Great leaders
would advance the political agenda for the sake of all people.
Constitutional checks and balances of power may not be as
necessary because leaders are not normally consumed by selfserving political policy.
The unconstrained vision requires people to trust their
leaders, even if government must limit some aspects of individual
freedom when it is outside the bounds of the common purpose.
This model is similar to the way families operate. Members of a
family often share common values, and therefore, the choices
made by parents are within the best interest of the individual
members of the family. The decisions are wise and dedicated to
the general welfare of all. The assumption is the same when the
family model is applied to the nation; society is better-off when
individuals comply with common values and decisions that their
political leaders advance. The process of achieving desired social
outcomes is then directed via government. This certainly conflicts
with people holding the constrained vision. In their eyes, the
constituency, its leaders and government bureaucrats are too
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diverse and, thus, society is incapable of determining and
administering good public policy.
The conflict between visions of reality leads to debates
about concepts such as equity. Those with the unconstrained
vision often argue that criteria can be defined. For example, some
people contend that it is just to honor senior citizens with
government programs that allow comfortable income and medical
care in retirement. Because it is just, all members of society
presumably gain when seniors are assisted. Those holding the
constrained vision disagree. They argue that it is not necessarily
more just to confiscate income from some and redistribute it to
others. For example, some taxpayers have less income than the
retirees who receive the benefits do. They contend that such
government policy cannot promote collective goodwill because it
cannot be explicitly defined. Society is not necessarily better-off
when some must sacrifice for the sake of others.
Key Point: Different views of human potential and constraints lead
to different political philosophies.
What Governing Framework Is Preferred?
Consistent with the unconstrained vision of reality is
communitarianism philosophy of governing, where individuals are
responsible not only to themselves but society. This implies that
the relationship between self and society is predetermined by the
collective will.
Modern communitarianism has historical
precedence in America. Since the mid-1800s, local groups have
formed with common goals sometimes centered about religion,
business
or
educational
interests.
However,
the
communitarianism philosophy on a national scale significantly
emerged in the 1930s and has grown into a movement that
includes both academic and political activists.
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The government becomes the center of a communitarian
society (perhaps the nurturing parent) that collects contributions to
provide programs for the common values. This implies that the
individual not only shares part of his/her income through
involuntary tax collections, but also may qualify to receive goods
or services that are deemed worthy by the community. Federal
taxation and subsidy to higher education is an example. In
addition, the government may find it necessary to regulate
economic activity to promote societal goals. For example, the
federal government once required freeway speed limits in the
name of energy conservation. Moreover, individuals are expected
to demonstrate their commitment to society’s goals. Obeying
speed limits would be an example of how individuals act
responsibly for the sake of energy conservation of the larger
community.
Opposed to communitarianism ideology is rugged
individualism. An individualist may certainly obey laws such as
speed limits. However, her desire to obey laws is not from a
zealous obligation to contribute to societal goals such as energy
conservation. Most subscribing to individualism recognize that
pursuit of individual initiative should only be restricted when
significant harmful consequences fall upon someone not a party to
the activity. So, for example, society needs speed limit laws not to
preserve energy but to prevent reckless endangerment toward
other drivers. Reckless endangerment toward others is immoral
behavior that may be prevented through laws of government.
Most immoral behavior such as reckless endangerment is well
understood by the natural laws or orderly principles that have
stood the test of time.
Those holding the view of individualism contend that in
most cases government is reprehensible when it interferes with
individual pursuit of self-satisfying actions. Ideas about governing
beyond a legal framework that protects individual liberty are not
supported by the philosophy of individualism. Government
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programs such as federal taxation for higher education or energy
conserving speed limits are not within the realm of this ideology.
Instead, individuals should be allowed to keep the money that
would otherwise be taxed for higher education even if the funds
might pay for gas-guzzler driving. This does not imply that
community is unimportant to individualists. However, they contend
that voluntary community service is better than the alternative –
using the coercive power of government.
Promoters of individualism prefer to be ‘left alone’ by
government. They would like to make their own decisions free of
interference by a controlling authority. In its purest form, the
system of governance they prefer is called laissez-faire. They
believe that it is morally correct for an economic system to allow
the expression of individual initiative. Economies dominated by
capitalism provide a close juxtaposition to the laissez-faire ideal.
Individuals are free to own resources and pursue profit in their own
self-interest. Buying and selling of goods and services is not
directed by government but by prices. The prices of resources
and products lead to decisions to produce and consume.
Under a system of laissez-fair, competition among
individuals is easily observed. An individual increases her
standard of living by providing labor or products that are better
than others do. However, this presents a magnificent irony.
Competitors seek the most desirable way to use their labor or to
provide the most preferred products to sell. They can only sell
what buyers will buy. So, the competition among sellers is
transformed into voluntary cooperation with buyers.
This is vastly different from the communitarian model of
governing.
On a national scale, goals and objectives are
predetermined and individual responsibility is an obligation.
Democracy provides the preeminent means of amalgamating the
set of goals and objectives among diverse people. As we will
learn in another chapter, special interest politics unfortunately
befuddles perfect democracy. Therefore, communitarian ideals
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are sometimes difficult to realize. Even without special interest
politics and with true majority rule, democracy is imperfect.
Government enactment and enforcement of legislative decisions
compels many individuals to adhere unwillingly to the majority rule.
The irony is that some people in the communitarian society are
forced to cooperate involuntarily.
Key Point: People have preferences for either communitarianism
or individualism.
How do Liberals and Conservatives Differ?
Intellectuals who call themselves classical liberals embrace
laissez-faire economics. They believe that society is better-off
with a weak central government, but instead operates most
efficiently with decentralized political administration and economic
liberty for the individual. The democratic process should not strip
away individual rights in favor of majority rule. Instead, the
constitution and laws are in-place to guarantee both political and
economic freedom. In other words, majority opinion does not
supplant an individual’s pursuit of her happiness.
Liberalism seeks change in the current political economic
system. However, the adjective, classical, is another name for
tradition. It might seem the term, classical liberal, is an oxymoron.
However, classical liberals honor the traditional concept of
liberalism as it applies to individual liberty. History shows that
most people of the world had been ruled by autocratic and
sometimes ruthless regimes, and individual liberty once was a
transforming concept.
Just centuries ago, the change to
libertarian principles began to emerge. As the twentieth century
closed, many countries with long histories of oppression liberalized
their economic systems to model America (or various other
Western nations). With newfound economic freedoms, people
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naturally have come to desire political liberty as well.
Americans who have enjoyed liberty for over two centuries
are presented with circumstances different than the emerging
countries of the world. Today, classical liberals find themselves
not quite in vogue but seeking change again. Modern liberalism
has taken the forefront among liberal thinkers and politicians.
Modern liberals in America have favored larger government that
often corresponds to a reduction in the liberties of individuals to
act in their own self-interest.
Many people subscribing to modern liberalism hold the
unconstrained view of reality where humans, collectively, are
unlimited in their abilities to do good works. Many liberals have
communitarian ideological ideals. Yet, other liberals promote a
paternal government without seeking responsibility from all
constituencies. This involves government’s active role in taxing,
providing social services, and creating opportunities and better
living conditions for people of lesser circumstances. This is a
socialist ideal. However, such programs provide benefits at an
opportunity cost that may not appear equitably distributed to all
people. Therefore, modern liberals must contend with the arduous
problem of identifying the worthiest victims of the economy and
redressing their circumstances.
Liberals are not alone in recognizing that the power of
government is a necessary instrument in support of their ideology.
Conservatives, the defenders of the status quo, need government
to act in their behalf. Conservatives tend to embrace classical
liberal ideals, and recognize that government is necessary to
guarantee individual political and economic rights. For example, a
good judicial system is necessary to protect property rights and
contracts. In addition, modern conservatives show a tendency to
support a strong national defense – again to protect political and
economic liberties. Conservatives do not normally favor the use of
extensive government regulation of economic activity, nor
provisions that redistribute income and wealth among members of
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society. Instead, they promote individual responsibility for their
own actions, risks, successes or failures. This is a capitalist ideal.
Nonetheless, some conservatives feel at liberty to use government
to shield their businesses against would-be competition.
Conservatives are fiscally cautious except for the funding
of the legal system and national defense. Conservatives support
the reduction of both taxes and spending on social services from
government budgets. Liberals defend higher taxes and spending.
They tend to be fiscally progressive. For example, liberals will call
for greater government involvement in healthcare even if taxes
must be increased. Conservatives resist such programs.
There is another perspective in delineating the difference
between conservatives and liberals. Some people are socially
conservative, while others are socially liberal.
Social
conservatives support traditional cultural convictions.
For
example, some trust religious manuscripts as directives from God,
embrace nuclear families, and are opposed to abortion of living
fetuses. At one time in history, these ideas were generally
accepted by the American culture.
Today’s social liberals
emphasize alternative ideas. For example, some promote secular
humanism, toleration of alternative lifestyles, and women’s’ choice
concerning abortion. Recognize that social liberals are not always
fiscally liberal. Those who call themselves libertarians tend to be
both socially liberal and fiscally conservative. Contrary, social
conservatives are not always fiscally conservative. Some call on
government to provide programs that support their ideals.
Key Point: Conservatives and liberals differ in ideological origins,
the size and scope of government.
What is the Efficiency-Equity Trade-off?
Mixed economic systems occur because politicians and voters are
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ideologically diverse. Fiscal conservatives tend to favor less
government and by implication more market activity. Fiscal
liberals prefer government to alter some of the outcomes from the
marketplace and provide social programs. The US Constitution
provides the framework for debate and compromise. For example,
different ideological groups may dominate the House of
Representatives and the Senate. A bill cannot become law
without passage from both chambers (and approval of the
President in most cases). Compromise often occurs. The nation,
therefore, has a mix of both capitalist and socialist elements in its
economy.
The efficiency of the economic system decreases while
the socialist economy becomes a relatively greater presence. The
highest level of efficiency is obtained when individuals and the
businesses they control are able to use resources to produce the
maximum amount of goods and services valued most highly by
consumers.
Under the incentive to earn maximum profits,
producers strive to achieve the least-cost optimal use of resources
toward this end. However, a growing government requires
involuntary taxation and often imposes regulations reducing the
likelihood that resources are available to be used more efficiently
by the private sector. In addition, some firms will be obligated to
redirect resources away from production but to the lobbying of
political officials who set government policy. At the same time,
government administrators do not have the zeal to optimally use
the resources at their disposal. They do not have a profit
incentive, but instead receive mixed signals from the diverse set of
political leaders.
Lastly, the accumulation of resources by
government leads to diminishing returns (i.e., declining marginal
productivity) while the size and scope of government increases.
The above analysis does not imply that efficiency would
be at its highest with the complete absence of government. Many
conservatives recognize the need for a legal system that protects
property rights and mediates contractual disputes. In addition,
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there are public goods that the private market fails to provide
adequately, such as national defense. However, when the
socialist economy is used for other means, efficiency has a
tendency to decline. Many liberals desire equity improvements
through government, but ultimately the economy sacrifices
efficiency. This means that the distribution of income, goods or
services may be fairer in a communitarian sense. However, with
less efficiency, there is less total income, goods or services to
distribute.
There are at least two competing standards of equity. The
first is more palatable to the ideals that many liberals support.
Income, goods or services should be redistributed more equally
than what occurs in the marketplace. The coercive power of
government is needed to achieve this form of equity, while the
efficiency of the economic system declines. The second standard
of fairness is that individuals should be allowed to purchase goods
or services through earned income according to their productivity.
They may keep or voluntarily distribute them to other people. This
standard of fairness is not in conflict with the efficiency of the
economy, but reinforces it.
Positive economics cannot decide on an appropriate
definition of equity. It can only describe whether or not a potential
trade-off with efficiency exists. Value laden normative economics
may prefer government involvement in the redistribution of
income, goods or services. A more egalitarian mixed economy
may be preferred to an economy with greater levels of income,
goods or services for the average citizen. Equity, as defined,
conflicts with the efficiency advantage of the capitalism.
Key Point: Economic efficiency is sacrificed when government
seeks a more equal distribution of income, goods or services.
Public Square Econ
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