Chapter 5 Government’s Role and Government Failure Copyright © 2015 McGraw-Hill Education. All...
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Transcript of Chapter 5 Government’s Role and Government Failure Copyright © 2015 McGraw-Hill Education. All...
Chapter 5
Government’s Role and Government Failure
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
5-2
Government’s Economic Role
• Government’s right to coerce • Force and economic efficiency
• Correcting for market failures• Positive externalities • Negative externalities
• Reducing private-sector economic risks
LO1
5-3
Directing and Managing Government
• No invisible Hand• Massive Size and Scope• The Need for Bureaucracy• The Need for Paperwork and Flexibility • The Information Aggregation problem • Lack of Accountability
LO1
5-4
Government Failure
• Inefficient outcomes caused by government• Voting problems• Principal-agent problem• Special-interest effect• Rent seeking behavior
LO2
5-5
Clear Benefits, Hidden Costs
• Unfunded Liability• Social Security program•Medicare
• Chronic budget deficits• Economic inefficiency •Debt Crisis• Balanced-budget laws
LO2
5-6
Misdirection of Stabilization Policy
• Two types of macroeconomic stabilization:• Fiscal policy• Monetary policy
• Politicization of Fiscal and Monetary Policy • Central banks in charge of monetary policy
LO2
5-7
Limited and Bundled Choice
• Only two or three choices for candidates for election
• Bureaucracy and Inefficiency • Public agencies less efficient than private
businesses• The test of profit and loss• Government employees often gain political
clout and bureaucrats justify their continued employment
LO2
5-8
Inefficient Regulation and Intervention
• Regulatory Capture • Railroad industry• Deregulation
• Government’s poor investment track record• Loan guarantees • The Solyndra Subsidy • Socializing losses, privatizing gains
LO2
5-9
Corruption
• Abuse trusted powers for personal gain • Two basic forms of corruption: • Government official bribed to do part of his
job• Government official demands a bribe to do
something illegal
LO2
5-10
Imperfect Institutions
• Criticisms of public sector inefficiency• Markets and government are both imperfect• Difficult to assign a good or service to either
the public sector or the private sector
LO2
5-11
Global Perspective
LO2
5-12
“Government Failure” in the News
• FEMA made payouts for hurricane Katrina victims on as many as 900,000 claims that contained invalid social security numbers or false names and addresses
• A 2011 audit revealed that the Federal government had paid $600 million in retirement benefits to deceased Federal retirees
• In 2011, $765,828 was spent to subsidize an IHOP restaurant and $113,277 to aid in historical preservation of video games