Government’s Role in the Economy US National Debt Clock

The Government’s Role in the Economy In the study of economics it is imperative to understand the role or our government. Since the Great Depression of the 1930’s the federal governments role has expanded so that today it is involved in many of the areas that were once reserved to the states.

The Major Tasks of Today’s Government Include: Enacting and enforcing laws Regulation of public utilities Promotes competition Provides goods and services Collects and spends trillions in tax dollars annually

Taxing is a Special Concern … to the people as any change in taxes affects the buying power of the public. Taxing is a tool used by the government to speed up or slow down the economy. The study of government revenue and expenditures at all levels is termed public finance.

Our Focus Will Be on Government Spending 6. Generally every election in America revolves around two core issues, taxing and spending. Every politician will try to tell us that they can provide us with quality services and better government without raising taxes or in some cases even lowering them. The truth is that even with these assurances the cost of government has continued to climb as well as the national debt, which is now at $______

7. The reason that the debt is climbing is that the government does not have enough money to fund its operations and therefore must borrow the funds it needs. In short, we do not pay enough taxes to fund our government. 8. To illustrate this point the debt between August 2005 and August 2006 has risen by a further $529,752,317,075. 9. What factors have triggered this rise in long term spending in America? The answer revolves around our demand for collective goods and services which benefit large numbers of people collectively and would not be available to everyone if individuals had to provide them. 10. One area of increasing costs is in the field of education. In early America about 1 in 10 children attended schools that were supported by churches or private tuitions. By the early 1800s Americans began to demand tax supported free schools and 1852 Massachusetts became the first state to pass compulsory school attendance. These laws were not totally effective as by the 1890s only about 10% of high school age children were enrolled in high schools. Today most American children attend school increasing the demand for buildings, equipment and teachers and thereby increasing the costs for education.

11Another collective good is the nation’s highway system 11Another collective good is the nation’s highway system. When the nation used horses as its main mode of transportation paved roads were of secondary concern. However, with the advent of the automobile, roadways in America took off and are still continuing to expand. The cost for these roads from design to construction to maintenance has also expanded.

Of great concern today is the area of Health and Income Security 13. Prior to 1935 Americans were responsible for providing for their own retirement needs and medical coverage was generally left to private charities. 14. In 1935 the congress gave us income security through the social security system which is a collective good. The system as envisioned was an assurance that Americans would not be deprived of all income as a result of unemployment, illness, disability or old age.

15. Even though workers and employers pay into the system it still requires a large government expenditure. 16. Social Security is in trouble today and will need to revamp itself because current projections show that the system will pay out more than it takes in by 2017 due to the Baby Boomers retiring in larger numbers after 2010.

Health Security 17. …is in worse shape than Social Security, as the medical costs for the elderly are rising faster and draining the system. Current projections show that the Medicare system funds will be exhausted by the year 2018. Independent projections on Medicare indicate that to preserve the system over the next 75 years will require an increase of 121% of the programs income and a reduction in program outlays of 51%.

National Defense 18. To give you a better idea of the rising costs in this field that the Civil War cost the government less than a billion dollars annually. By 1960 National Defense had risen to 44 billion annually rising to 230 billion by 1984. In the post 09-11 years and the invasion of Iraq this figure has continued to rise. In fiscal year 2002 this figure climbed to 344.4 billion and in 2004 to 401.3 billion. The latest figure for 2007 is 449 billion. The figures are deceptive to a degree as they fail to reflect funds given to agencies other than the Department of Defense but still are linked to national defense like the department of Homeland Security. When you factor these monies in then the amount spent in 2004 rises from 401.3 billion to 695 billion.