1. 1 Section 3 The Economics of Markets and Government

2. 2 Political Vs. Market Choice There is usually a huge difference between the value created by goods and services provided through the government and those obtained through the market. Lets do an activity to examine this difference!

3. 3 The Four Ways to Spend Money!

4. 4 You spend your own money on yourself You spend somebody else’s money on yourself You spend your own money on somebody else You spend somebody else’s money on somebody else

5. The Political Process Bureaucrats Voters Legislators

6. 6 The Problems with Collective Decision Making 1. Rational Ignorance Effect 2. Special Interest Effect 3. The Short Sightedness Effect 4. The Absence of the Profit Motive

7. Rational Ignorance Effect Rational ignorance effect: a rational individual has little or no incentive to acquire information needed to cast an informed vote.

8. 8 Special Interest Effect 1. Special interest effect: An issue that generates substantial benefits for a small group by generating minimal costs to a large group. (in aggregate, losses may exceed benefits).

9. 9 The Short-Sightedness Effect and Debt Politicians tend to favor policies that have current and visible benefits as long as the costs are hard to identify and far out into the future (even if the costs outweigh the benefits): This can lead to the accumulation of significant amounts of debt:

10. Net Federal Debt as a Percent of GDP 10

11. The Short-Sightedness Effect and Debt http://www.usdebtclock.org/

12. The Absence of the Profit Motive The market has a way of channeling resources into the most profitable and wealth enhancing activities…. But nothing like this exists in the government sector

13. 13 End of Section 3….Any Questions? Thank You!