Bartle is a professor in the School of Public Administration at the University of Nebraska at Omaha. Carol Ebdon is an associate professor in the School of Public Administration at the University of Nebraska at Omaha.
The Evolution of Economics
The Search for a Theory of Value
INTRODUCTION
The subtitle of this chapter, "The Search for a Theory of Value," underlines the efforts of economists to find universal laws underlying the workings of the economy that would have the same force as a theory of gravity or the second law of thermodynamics. or the conservation principle, ideas that have been important in the history of physics. The emphasis is on the evolution of economic thinking and critical turning points in the history of economics.
THE CLASSICAL ECONOMISTS .1 Precursors
- From Petty to Hume
- Adam Smith
- Thomas Malthus
- Jean Baptiste Say and the Continental Economists
- David Ricardo
- John Stuart Mill
- Karl Marx
He recognized the importance of the division of labor (anticipating Smith) and had at least some sense of economic surplus (Niehans, 1990; Screpanti and Zamagni, 2001). Smith also discussed a labor theory of value, rejecting the physiocrats' position.
THE MARGINALIST REVOLUTION .1 Whys and Wherefores
- Key Innovators
- Problems with Utility Theory
Classical economists, in this view, were unprepared to deal with the implications of the labor theory of value as expounded by Marx. Members of the Austrian School have been important defenders of the utility theory of value.
CRITICS AND HERETICS
- The Methodology of Economics
- The Realism of the Paradigm
Ingram was attracted to a more inductive method because of the obvious differences in the conditions of the Irish compared to the English. There have been two groups of institutionalists: those who operated in the first half of the twentieth century and the neo-institutionalists. Institutionalists like Gunnar Myrdal, a Swedish economist who began as a Stockholm School theorist (discussed later), did institutionalist work in the United States, he says, because it was the only way to approach issues like inequality (Myrdal). , 1975), a burning question in the modern era.
THE REEMERGENCE OF MACROECONOMICS
- Precursors to Keynes
- Keynes and the General Theory
The Stockholm school had no theory of the multiplier and did not really focus on an economy that was in a period of stagnation (Shackle, 1972; Lundberg, 1985; Blaug, 2002). In light of the Great Depression, Keynes (1936) believed that it was impossible to argue that high unemployment was due to workers' unwillingness to accept lower wages. In Chapter 13 of the General Theory, Keynes summarized how a number of variables influence the success of monetary policy.
MODERN ECONOMICS
- The Post–World War II Period
- Themes in Microeconomics
- Themes in Macroeconomics
- Marxists and Neo-Ricardians
- Economic History
Despite the initial positive response to game theory, innovations in general equilibrium analysis eclipsed game theory in the 1950s. Nevertheless, despite the criticism, the debates about expected utility theory have kept the utility theory of value alive and at the forefront of economic theorizing. Again, the debate itself played a role in reviving interest in the utility theory of value, despite the problems it raised.
CONCLUSION
This is relevant because the acceptance of the economy by people outside the West may in fact rest on the answer to this question. In the post-World War II period, some economists attempted to abandon the synthesis between microeconomics and macroeconomics in light of the differences that persist between the two approaches. Finally, how can this assumption of rationality help us explain some of the big questions that continue to concern us.
Basic Economics of Fiscal Decentralization
INTRODUCTION
Much of the basic theory of fiscal decentralization is based on Richard Musgrave's Functions of Government (1939). Again, the use of fiscal policy to manage economic stability is usually best done at the central government level. A good or service provided by a central government is often uniform across jurisdictions, regardless of the preferences of a particular jurisdiction.
GOVERNMENT FINANCE: WHO TAXES WHAT?
- Tax-Base Assignment
The ability to pay taxes tries to match the tax rate with the taxpayer's fiscal capacity. Progressive taxation, designed for redistributive goals, should be taxed primarily at the state level. The state should collect taxes from a tax base that is unequally distributed among devolved jurisdictions.
GOVERNMENT EXPENDITURES: EFFICIENT ALLOCATION OF GOODS AND SERVICES
- Conceptual Construct for Expenditure Analysis
- Optimal Jurisdictional Size
- Expenditure Assignment
Taxes suitable for stabilization policies should be taxed at the central government level and taxes in lower level jurisdictions should be cyclically stable. The optimal size of a jurisdiction for a public good or service is the maximum difference between the realized cost savings and the loss due to dissatisfaction with the delivered bundle of goods. When the benefits resulting from economies of scale exceed the benefit determined by the optimal size, expenditure allocation should be handled at the next higher level of government.
INTERGOVERNMENTAL GRANTS IN AID
- Characteristics of Grants
- Theories of Grant Utilization
The effects of flat-rate and matching intergovernmental grants on recipient government decision-making are influenced by two factors: the income effect and the substitution effect. The price of the additional good or service remains P1, but with additional funds from the average price, the quantity of the good or service increases from E0 to E1. However, as Figure 2.3 shows, matching grants are more stimulative than flat grants.
CONCLUSION
This is due to the "flow" of grant money from the target area to other areas. Property taxation and the Tiebout model: evidence for the benefit picture of zoning and voting. Taxation and the Tiebout model: the differential effects of head taxes, land taxes, rents and property taxes.
Voting and Representative Democracy
INTRODUCTION
In addition, the government's regulatory framework establishes the "rules of the game" for the market sector. Some economists view the political process as an outgrowth of individual behavior (called individual choice). By means of the tools of economics, theories are developed to explain how the political process works.
ECONOMIC EFFICIENCY
- Why Would the Invisible Hand Fail?
- Ideal Economic Efficiency
In the next section, we examine the market's shortcomings and the potential of government policy as an alternative means of solving economic problems. Economists recognize that each individual does not have the efficiency of the economy or society as a primary goal. First, taking an economic action will be efficient if it provides more benefits than costs to the individuals of the economy.
PARETO CRITERION
- Supply and Demand
Thus, when all individuals are considered, the net impact of such an action is counterproductive.
VOTING AND REPRESENTATIVE DEMOCRACY .1 Voting
- Representative Democracy
If corruption or bribery does not occur, there are no prices or money transactions in the political market. But do votes in the political market really reveal what the electorate wants, or are votes merely proxies. In a sense, each group is a constraint on the other two, as we will see later in the chapter.
THE MARKET FOR VOTES
- What Each Voter Wants
By making these assumptions, we can measure the "quality" of education for the district by the size of the budget. The socially efficient size of the budget is Gs, which occurs at point A where MC intersects ΣMB. The school budget is usually financed by taxes, and each voter perceives an individual tax price that will be his or her share of the budget.
THE MEDIAN VOTER MODEL
- Voting Outcome
If all voters are ranked according to their most desired level of government services, from low to high, the median voter is the one in the middle. Medium form a majority, they will vote in favor of GM on any proposed level of public services greater than GM. Medium will vote in favor of GM on any level of public services less than GM.
THE EFFECT OF POLITICAL PLATFORMS
When demands sum to ΣMB, ΣMB intersects MC at the same point, since tax prices also sum to MC. However, with non-identical voters, tax prices never vary exactly with demands so that they all cross at the same output level. Because both parties tend towards the same middle ground, which of the two is elected becomes less important.
VOTING EQUILIBRIUM VERSUS EFFICIENCY
- Intensity of Preference
- The Efficient Level of Public Expenditures
In the same way, the political supplier (politician) is a dynamic force in the collective decision-making process. These goals are as important in the political arena as they are in the private sector. When people act in the political sphere, they may genuinely want to help their fellow citizens.
CONFLICT BETWEEN GOOD ECONOMICS AND GOOD POLITICS
- Rational Ignorance
- Special Interest Issues
- Shortsightedness
And use those resources to "educate" the uninformed majority of voters that you support policies that matter to them. You would have an incentive to follow this path even if the total community benefits of supporting the special interest were less than the cost. Similarly, consumers will benefit from purchasing additional units as long as their benefits, as revealed by the slope of the demand curve, exceed the market price.
THE TIEBOUT MODEL
In this part of the chapter we discuss the relationship between intercommunity mobility, voluntary community formation and the efficient provision of public goods. There are two points that can be made to show the allocative results of the Tiebout model. First, changes in the cost of one of the public services will cause changes in the quantity produced.
SUMMARY
Given this, “each individual, in striving as a competitive buyer to reach the highest level of indifference, depending on given prices and taxes, would be guided as if by an invisible hand toward the grand solution of the social maximum position. .”. How might the limitations of the Tiebout model's assumptions contribute to a role for voting? Do you believe that real-world politicians take political positions to improve their electoral prospects?
Bureaucracy and Bureaucrats
INTRODUCTION
Herbert Kaufman (2001) hailed the work of bureaucracy and concluded that bureaucracies are key players in the American government system. In addition to providing services, the economic role of the bureaucracy includes regulation of the private sector. However, many modern political economists disagree with Weber about the usefulness of bureaucracy in the market economy (Buchanan, Downs and Tullock, 1962).
DEFINITION
The elements of the bureaucratic model of organization such as vertical hierarchy, formal rules and impartial treatment provide a sanctuary for the development and flourishing of the private sector (Weber, 1950). In their view, government bureaucracies promote selfish behavior, which corrupts the natural functioning of the market (Simmons, 2003). Finally, the term often refers to all elected, appointed, and elected government employees in the United States.
BUREAUCRATS
Bureaucracy also refers to the totality of offices in the executive branch of government at the federal, state, and local levels of government.
CHARACTERISTICS OF BUREAUCRACY
- A Well-Defined Hierarchy of Positions
- Division of Labor and Specialization
- Formal Written Rules and Procedures
- Impersonal Relationships
- Maintenance of Formal Records
- Professionalization
The Office of Personnel Management (OPM) is responsible for employment in most federal government agencies. In fact, most large organizations in the United States closely resemble Weber's characterization of bureaucracy. However, many organizations are paying more attention to the human side of the organization and rewarding employees for initiative and creativity.
FUNCTIONS OF THE BUREAUCRACY
Many view the transfer of rulemaking responsibility to the bureaucracy as an abdication of responsibility by Congress (McCubbins, 2002). Conservatives argue that the bureaucracy should be wary of over-regulation of industries because it raises prices and stifles economic growth.
THE ORGANIZATION OF THE FEDERAL BUREAUCRACY IN THE UNITED STATES
- The Executive Office of the President
- Cabinet-Level Departments
- Independent Establishments and Government Corporations
Office of the Vice President Council of Economic Advisors Council of Environmental Quality Office of Administration of the National Security Council. The president's offices are the Office of Management and Budget (OMB), the National Security Council (NSC), and the Council of Economic Advisers (CEA). The NSC's primary function is to advise and assist the President in matters of national security and foreign policy.
POWER OF THE BUREAUCRACY
He believed that the bureaucracy is better equipped than the legislature to make decisions in the public interest. The strength of the bureaucracy also lies in the political support it receives from various constituencies. Another source of power for the bureaucracy is the support it receives from client groups.
CONTROL OF THE BUREAUCRACY
- The Bureaucracy and Legislative Constraints
Administrative Procedure Act of 1946 — The main purpose of the Administrative Procedure Act (APA) is to ensure that the public has the opportunity to participate in the formulation and review of government regulations (Gromley and Balla, 2004). Privacy Act of 1974 — The Privacy Act helps limit the power of bureaucracy. Another mechanism the president uses to control the bureaucracy is through executive orders, often referred to as the “power of the pen” (Mayer, 2002).
SUMMARY
Interest groups scrutinize agencies and often bring good and bad news to the attention of Congress and the press. The chief executive, Congress, and the judiciary have formal powers and a variety of tools to control the bureaucracy. The tools Congress uses to control the bureaucracy include legislative oversight, fragmentation of responsibilities, appropriations, and confirmation of top bureaucrats.
Public Goods
INTRODUCTION
Over time and across cultures, public goods have almost universally been provided by governments. The propensity of societies to provide public goods through the public treasury is surprisingly consistent over time. The second part of the chapter will look at the purest public goods, which are conveniently called pure public goods.
DEFINITION OF PUBLIC GOODS
- Origins of the Terms
- Casual Definition of Public Goods
The areas where there is most agreement in the public goods literature are the concept of public goods and its opposite, private goods. When one moves beyond the opposing categories of public and private goods, consensus still emerges. So the discussion about public goods and their opposite, private goods, is the safest place to start.