“Nothing is so permanent as a temporary government program.” Milton Friedman, “Tyranny of the Status Quo,” (1984) p. 115 Friedman was a free-market economist critical of government intervention. With this quote, he was making the point that government intervention can invariably lead to government failure and inefficient use of resources. One example, Friedman used was …
What are the problems of high government borrowing? The potential problems of government borrowing include; higher debt interest payments, a need to raise taxes in the future, crowding out of the private sector and – in some cases – inflationary pressures. Potential problems of high government borrowing Higher debt interest payments. As borrowing increases, the …
One of the first lessons in economics is the idea of opportunity cost. If you pursue one choice, it means you can’t do another option. The government faces countless decisions based on this. For example, the government could spend more on health care, but the opportunity cost would be lower spending on education. We could …
Readers Question: The Labour party, among others, protests about the effects of government austerity policies on ordinary people but does government spending, even so-called ‘investment in infrastructure’, not automatically increase national debt which means punishing future generations? Firstly, if a government increases spending without any corresponding increase in taxes, then this change in the government’s …
Readers Question: Why does the government borrow? Essentially, the government borrows so that it can enable higher spending without having to increase taxes. The annual amount the government borrows is known as the budget deficit. The total amount the government has borrowed is known as the national debt or public sector debt. There are many …
Government Borrowing can be acceptable under certain conditions In 2008/09, US borrowing rose sharply as the economy went into recession. The borrowing enabled the government to bailout the car industry and provide automatic fiscal stabilisers. Without government borrowing, demand would fall by more. 1. Recession If there is a downturn in the economy, there will …
The current US administration have suggested they want to increase the US budget deficit to enable higher rates of economic growth. What does economic theory state about this idea? “We need to have new deficits because of that. We need to have the growth,” Mulvaney said. “If we simply look at this as being deficit-neutral, …
Definition of government failure: This occurs when government intervention in the economy causes an inefficient allocation of resources and a decline in economic welfare. Often government failure arises from an attempt to solve market failure but creates a different set of problems. Reasons for government failure Lack of incentives: In the public sector, there is …