Government and the Economy Economics Chapter 11

In class today: CBM #5 (Chapters 11 and 12) Score and graph it Get out your charts that you filled in last class after the Unit II test (Chapter 11: Govt and the Economy) Check your answers from the power point, fill in remaining info to complete them In class activity – Analyze political cartoons placards A-G, use 1 Role of Govt from your chart for each Placard analysis!

Economic powers of the US Government Article 1: US Constitution gives government the following powers: To levy and collect taxes Provide for the general welfare Borrow money Regulate interstate and foreign commerce Establish bankruptcy laws Coin money and regulate value Fix the standards of weights and measures Protect inventors and authors works Exercising these powers is called regulation

Protecting Property Rights What is Private Property? Land Personal possessions Physical Assets Intellectual Property Protecting private property = key to free enterprise, because incentives (to own and develop) matter Examples: Courts, Police, Patent and Trademark Office Protecting property rights is essential for free enterprise Why??? Because incentive matter Private ownership encourages people to take care of their property – fix leaks to raise property value Private ownership encourages people to put their property to productive use – plant crops that will grow in your specific region – wouldn’t plant banana in VA Private ownership encourages people to develop property in ways that benefit others – build a health club on your property to help community be more healthy

Eminent Domain An EXCEPTION to property rights = Eminent domain: Government right to seize property for public use Must fairly compensate owner 5th Amendment – guarantee due process and just compensation Kelso v. City of New London Supreme Court agreed that City of New London could seize property for economic development Eminent Domain – property often seized to build schools, roads, community centers Kelso – New London wanted to seize rundown area and give to economic developers for economic revitalization Supreme Court agreed that fixing up run down area was for the good of the public 5th Amendment – Takings Clause – added fair compensation to due process

Maintaining Competition Government prohibits practices that: Restrict competition in the marketplace Price fixing Bid rigging Market division Form monopolies Government also monitors mergers (joining of 2 firms into 1) Examples: Justice Department & Regulatory Agencies Helps markets work efficiently Competition forces producers to use resources efficiently – develop new and better products Illegal: Price fixing – competitors agree on a price – often higher than the market will bear – every producer wins Bid rigging – producers agree on who will submit the lowest bid – often higher than market will bear – take turns submitting lowest bid Market division – producers agree to split up market in their best interests Mergers – two companies joining to form one – XM SIRIUS recently

Protecting Consumers, Savers, and Investors Caveat Emptor – “Buyer beware” Government provides information about products and ensures goods and services are safe Examples: Consumer Product Safety Commission FDIC FDA

Protecting Workers Safeguard the interests of workers Protect physical well-being Examples: Department of Labor OSHA Occupational Safety and Health Administration – protects workers physical well-being Regulation regarding everything from working conditions standards for tools Minimum Wage???

Addressing Externalities Positive or negative spillover effects from production or consumption Govt can support positive externalities Examples providing for education Immunization programs Limit negative externalities EPA policies to control pollution Incentives Tolls, taxes, quotas

Providing Public Goods Providing goods and services to the community for free Examples National defense Street lights Highways, dams, bridges

Promoting Economic Stability After the stock market crash of 1929, the US government has played an increasing role in regulating the economy to prevent booms and busts Examples: Maintaining dollar value Stimulating business activity (incentives, stimulus)

Redistributing Income US Census Bureau charts the distribution of income in the US Also calculates the poverty rate = % of households below poverty threshold Examples of income redistribution: Welfare payments, food stamps, public housing, school lunches, Medicaid

Is Regulation Always Good? Over regulation – detail make doing business unmanageable Regulation needs to balance costs & benefits Examples???

Deregulation Removes restrictions on economic activity Banking Airlines Cable TV Electricity Trucking Industry becomes more competitive Weaker companies fail or merge Strong companies survive

Class Activity Using your chart of Role of Government in the Economy In pairs, study and rotate placards A-G Fill in handout “Analyzing Political Cartoons About the Role of Government” Each Placard represents ONE of the 8 Roles on your chart. Use each one only ONCE!