U.S. Economy
Информация - Экономика
Другие материалы по предмету Экономика
ment are trying to buy more goods and services than it is possible to produce at that time, the government can reduce total spending in the economy by reducing its own spending. Or the government can raise taxes on households and businesses to reduce the amount of money the private sector spends. Either of these fiscal policies will help reduce inflation. Conversely, if inflation is low but unemployment rates are too high, the government can increase its spending or reduce taxes on households and businesses. These policies increase total spending in the economy, encouraging more production and employment.
Some government spending and tax policies work in ways that automatically stabilize the economy. For example, if the economy is moving into a recession, with falling prices and higher unemployment, income taxes paid by individuals and businesses will automatically fall, while spending for unemployment compensation and other kinds of assistance programs to low-income families will automatically rise. Just the opposite happens as the economy recovers and unemployment fallsincome taxes rise and government spending for unemployment benefits falls. In both cases, tax programs and government-spending programs change automatically and help offset changes in nongovernment employment and spending.
In some cases, the federal government uses discretionary fiscal policies in addition to automatic stabilization policies. Discretionary fiscal policies encompass those changes in government spending and taxation that are made as a result of deliberations by the legislative and executive branches of government. Like the automatic stabilization policies, discretionary fiscal policy can reduce unemployment by increasing government spending or reducing taxes to encourage the creation of new jobs. Conversely, it can reduce inflation by decreasing government spending and raising taxes. .
In general, the federal government tries to consider the condition of the national economy in its annual budgeting deliberations. However, discretionary spending is difficult to put into practice unless the nation is in a particularly severe episode of unemployment or inflation. In such periods, the severity of the situation builds more consensus about what should be done, and makes it more likely that the problem will still be there to deal with by the time the changes in government spending or tax programs take effect. But in general, it takes time for discretionary fiscal policy to work effectively, because the economic problem to be addressed must first be recognized, then agreement must be reached about how to change spending and tax levels. After that, it takes more time for the changes in spending or taxes to have an effect on the economy.
When there is only moderate inflation or unemployment, it becomes harder to reach agreement about the need for the government to change spending or taxes. Part of the problem is this: In order to increase or decrease the overall level of government spending or taxes, specific expenditures or taxes have to be increased or decreased, meaning that specific programs and voters are directly affected. Choosing which programs and voters to help or hurt often becomes a highly controversial political issue.
Because discretionary fiscal policies affect the governments annual deficit or surplus, as well as the national debt, they can often be controversial and politically sensitive. For these reasons, at the close of the 20th century, which experienced years with normal levels of unemployment and inflation, there was more reliance on monetary policies, rather than on discretionary fiscal policies to try to stabilize the national economy. There have been, however, some famous episodes of changing federal spending and tax policies to reduce unemployment and fight inflation in the U.S. economy during the past 40 years. In the early 1980s, the administration of U.S. president Ronald Reagan cut taxes. Other notable tax cuts occurred during the administrations of U.S. presidents John Kennedy and Lyndon Johnson in 1963 and 1964.
Limitations of Government Programs
Government economic programs are not always successful in correcting market failures. Just as markets fail to produce the right amount of certain kinds of goods and services, the government will often spend too much on some programs and too little on others for a number of reasons. One is simply that the government is expected to deal with some of the most difficult problems facing the economy, taking over where markets fail because consumers or producers are not providing clear signals about what they want. This lack of clear signals also makes it difficult for the government to determine a policy that will correct the problem.
Political influences, rather than purely economic factors, often play a major role in inefficient government policies. Elected officials generally try to respond to the wishes of the voting public when making decisions that affect the economy. However, many citizens choose not to vote at all, so it is not clear how good the political signals are that elected officials have to work with. In addition, most voters are not well informed on complicated matters of economic policy.
For example, the federal governments budget director David Stockman and other officials in the administration of President Reagan proposed cuts in income tax rates. Congress adopted the cuts in 1981 and 1984 as a way to reduce unemployment and make the economy grow so much that tax revenues would actually end up rising, not falling. Most economists and many politicians did not believe that would happen, but the tax cuts were politically popular.
In fact, the tax cuts resulted in very large budget deficits because the government did not collect enough taxes to cover its expenditures. The government had to borrow money, and the national debt grew very rapidly for many years. As the government borrowed large sums of money, the increased demand caused interest rates to rise. The higher interest rates made it more expensive for U.S. firms to invest in capital goods, and increased the demand for dollars on foreign exchange markets as foreigners bought U.S. bonds paying higher interest rates. That caused the value of the dollar to rise, compared with other nations currencies, and as a result U.S. exports became more expensive for foreigners to buy. When that happened in the mid-1980s, most U.S. companies that exported goods and services faced very difficult times.
In addition, whenever resources are allocated through the political process, the problem of special interest groups looms large. Many policies, such as tariffs or quotas on imported goods, create very large benefits for a small group of people and firms, while the costs are spread out across a large number of people. That gives those who receive the benefits strong reasons to lobby for the policy, while those who each pay a small part of the cost are unlikely to oppose it actively. This situation can occur even if the overall costs of the program greatly exceed its overall benefits.
For instance, the United States limits sugar imports. The resulting higher U.S. price for sugar greatly benefits farmers who grow sugarcane and sugar beets in the United States. U.S. corn farmers also benefit because the higher price for sugar increases demand for corn-based sweeteners that substitute for sugar. Companies in the United States that refine sugar and corn sweeteners also benefit. But candy and beverage companies that use sweeteners pay higher prices, which they pass on to millions of consumers who buy their products. However, these higher prices are spread across so many consumers that the increased cost for any one is very small. It therefore does not pay a consumer to spend much time, money, or effort to oppose the import barriers.
For sugar growers and refiners, of course, the higher price of sugar and the greater quantity of sugar they can produce and sell makes the import barriers something they value greatly. It is clearly in their interest to hire lobbyists and write letters to elected officials supporting these programs. When these officials hear from the people who benefit from the policies, but not from those who bear the costs, they may well decide to vote for the import restrictions. This can happen despite the fact that many studies indicate the total costs to consumers and the U.S. economy for these programs are much higher than the benefits received by sugar producers.
Special interest groups and issues are facts of life in the political arena. One striking way to see that is to drive around the U.S. national capital, Washington D.C., or a state capital and notice the number of lobbying groups that have large offices near the capitol building. Or simply look at the list of trade and professional associations in the yellow pages for those cities. These lobbying groups are important and useful to the political process in many ways. They provide information on issues and legislation affecting their interests. But these special interest groups also favor legislation that often benefits their members at the expense of the overall public welfare.
EThe Scope of Government in the U.S. Economy
The size of the government sector in the U.S. economy increased dramatically during the 20th century. Federal revenues totaled less than 5 percent of total GDP in the early 1930s. In 1995 they made up 22 percent. State, county, and local government revenues represent an additional 15 percent of GDP.
Although overall government revenues and spending are somewhat lower in the United States than they are in many other industrialized market economies, it is still important to consider why the size of government has increased so rapidly during the 20th century. The g