Nichole Plyler
Dr. Pierson
BA-2008-205
September 11, 2015
Government’s Role and Government Failure

Government’s Economic Role
Government’s Right to Coerce
In economic activities, government has the right to force individuals to do things. So if I bought and sold ducks for a business, I would want to make sure the distribution of ducks are high. If the distribution is low, my business won’t do as well in comparison if the distribution was high. With the less distribution of ducks, government is forcing me to pay more money to get my ducks. Private sectors economic activities, however, government has the right to administer involuntary transactions. So if I bought some ducks for my business and had to take a loan out from the bank because I didn’t have enough money, did not pay the loan back, government has the right to throw me in jail.
Some people believe that the control that government has over us is too much control. Although with too much control it could be beneficial. With government’s control there is a correction for market failures. By government setting taxes on goods and services it helps improve economic efficiency. With higher taxes leads to private vectors over producing. Private sectors start over producing because their costs are borne by third parties rather than by their producers. In order to prevent sectors from over producing government can enforce involuntary policies. If I was getting duck bedding, food and shelter to run my business and not paying for it I would want to expand my fencing to get more ducks. Costing the third party to pay more for my wants. But government can enforce me to pay the taxes on the things I buy to at least get money from me and this will stop me from expanding my fencing because I have to pay something.
Another benefit to government having control over citizens is to reduce the Private-Sector economic risks. Government has the right to outlaw theft, deception and discrimination. Also they restrain trade and price fixing. This is a benefit because it gives security to individuals and firms, less law breakers and more investment for companies. If there is more investment there will be more businesses to produce more goods and services.
The Problem of Directing and Managing Government
Democratic governments face several challenges in directing and supervising government actions. Some factors that cause government failure are no invisible hand, massive size and scope, the need for bureaucracy, the need for paperwork and inflexibility, the information aggregation problem and lack of accountability. The no invisible hand states that awfully designed government policies can misallocate resources. The massive size and scope identifies and corrects inefficient government policies that are blocked by government policies. The need for bureaucracy shows fewer people supervise government affairs than people work. The need for paperwork and inflexibility is to make sure everyone is doing their job, there are a set of rules and regulations. The information aggregation problem shows that there are too many things that government has to look over that they just glance over it and move on to the next. Lack of accountability shows that government has too many activities at once that they cannot focus on one, leading most activities to run poorly.
Government Failure
Government failure has imperfections in government performance. Government failures occur because officials either put their interests first or the majority interests first. If I am putting my interests first in my duck business or the majority interests first I may lose business. If I like Merganser ducks and chose only to sell them I could lose many customers. If I used the majority interests I could be selling Stiff Tail and Whistling ducks losing the people that like Scoter ducks.
Representative Democracy and the Principle-Agent Problem
Our system of democracy allows us to elect people to understand the pros and cons of different laws that are trying to be enforced. With this advantage Principle-agent problems arise. Conflicts between two groups of people arise because one group of people have different interests. If my vice president of my duck company and I do not agree on something this will set us back on trying to get something done. If I want a waterfall in my duck pond and he wants a fountain we will but heads. I look over the company and get ideas from staff on what they would prefer and do what they want. I, pertaining to their interests or suggestions, will get me re-elected as president of the company. This decision of whether to get a fountain or waterfall falls in with special-interest effect. If I choose to get the waterfall, I will please everyone who would like to see a waterfall in the duck pond, though I will lose the people who wanted to see a fountain. If I decided I wanted neither and spent the money to build a bridge somewhere out in the country so the ducks can go under the road and not over the road saving many duck’s lives is called earmark. I stole the money from the company to build something that has no benefit to the business. This will be good news for duck lovers but not the company because I wasted a lot of money. Rent-seeking is also used. Rent-seeking is increasing prices so people can make a profit. Government uses laws and rules to gain more money from activities. For example, foreign goods are higher priced so that government can make more money off things, but this also limits competition. This limits competition because not everyone is willing to buy foreign goods.
Clear Benefits, Hidden Costs
Politians will reject many things that have a very high upfront cost and projects that take a long time. If I was to purchase more land for my ducks it will cost a lot of money. Also if I do this, it will a long time to get all of the land ready to make sure the welfare of the ducks are met. This will not be benefit to me because if in a couple years I decided not to run my business anymore, I wasted all that money to buy the land. If the construction was instant I would consider it more because I could benefit from it right away.
Unfunded Liabilities Unfunded liabilities is money that the government collects (taxes) to pay off an activity. For example if I just started my duck company and bought 100 ducks for 50 dollars a duck, 30 dollars for food and 30 dollars, I put all of this money into ducks and the welfare. If I only sell the ducks, food and bedding for a lesser price than what I bought them for, I would not be able to cover the expense. Government puts all this money into Social Security and taxes people to gain that money back, but with the current rate of tax they will not be able to cover the expense of that program.
Chronic Budget Deficits Budget deficit happens when a company falls short of money and have to find a way to pay it back. Chronic deficits can cause problems in two ways, economic inefficiency or debit crises. Economic inefficiency occurs when the deficit spending promotes an underproduction of resources to private sectors and an overproduction to government. Debit crisis is when government has been cut off. They maxed out their credit card and can’t spend any more money.
Misdirection of Stabilization Policy Governments have their ups and downs but they have two policies to help them with the business cycle. The Fiscal policy lower tax rates so people buy things. Government does this when employment is going down and there is no output. This will allow people to buy more things and increase production thus creating more jobs. The Monetary policy lowers interest rates so people can buy houses or cars and take out loans. This increases the need to hire more people and produce more goods. To prevent inflammation, professional economists use their expertise to decide if and when the Monetary policy should be used.
Limited and Bundled Choice People should have less choices when it comes to goods. People can buy different things to their liking in a market. With public sectors you must choose one good out of a certain number and the money they make will go towards something. So if I like Merganser ducks I’m going to buy them but the money may go towards something I don’t favor. Whereas if I buy Scout ducks and don’t like them but the money goes towards something I like.
Bureaucracy and Inefficiency Government enhances promotion prospects with higher profit and lower costs. The promotion benefits both the company and the person selling. For instance if Sally sold a duck for my company she would get commotion for that duck but she would also make a profit for the company. This makes the company achieve efficiency. Inefficiency leads to abandonment of things. It may lead to finding new problems so people can continue being employed. If I wasn’t selling any ducks I would have to shut down my business and abandon it. If I saw that another place was having trouble with their duck farm I may compromise with them to keep my people employed.
Inefficient Regulation and Intervention Government controls many aspects of the market economy. Some of the interventions that government makes, makes things less beneficial for the companies. Regulatory Capture is a government agency supervising an industry and the business is influenced by the company that is supposed to be regulating. An example of this is my company getting invaded by an industry and they make my company to their interest and not the consumers. Deregulation helps solve regulatory capture because there is no regulatory agency left to capture. Also deregulation increases efficiency and competition. Loan Guarantees are what new businesses get to start up their business. Government lends companies money who they think are most likely to increase economic efficiency but to those with the best political connections. If the company should happen to fail the tax payers are responsible for paying the money that was not paid back to the government. So I probably would not get money for my duck business from the government.
Corruption
Political corruption is basically greediness. Officials will use their powers for personal gain. If I my dad asked me if he could work in my duck company and I told him that he had to donate half his paycheck to the company bank account, even though he has the qualifications of working at my company, would be an example of political corruption. There are two forms of political corruption, one must be bribed into what he is doing and bribing to do something illegal.