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Lecture Principles of Microeconomics: Chapter 12 - James D. Miller

Lecture Principles of Microeconomics - Chapter 12: Government imperfections. After reading this chapter, you should be able to answer the following questions: What is public choice theory? How do government officials behave? How do politicians take away from the weak? How do politicians destroy the wealth of society? How does corruption affect the wealth of society? What can reduce corruption? What are the problems with democracies? | Chapter 12 Government Imperfections McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved. Learning Objectives What is public choice theory? How do government officials behave? How do politicians take away from the weak? How do politicians destroy the wealth of society? How does corruption affect the wealth of society? What can reduce corruption? What are the problems with democracies? 12- Public Choice Theory Public choice theory is the economic study of government. It examines how government officials and voters choose. 12- A Fictional Tale Decisions for a congressman: Which tariff to vote for? Which group of population to choose to cut funding from? How to allocate licenses? How to protect jobs in your district? Every congressman tends to favor powerful interest groups and puts his voters interest above the needs for the country. 12- Government Officials Economists assume that government officials act in their own . | Chapter 12 Government Imperfections McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved. Learning Objectives What is public choice theory? How do government officials behave? How do politicians take away from the weak? How do politicians destroy the wealth of society? How does corruption affect the wealth of society? What can reduce corruption? What are the problems with democracies? 12- Public Choice Theory Public choice theory is the economic study of government. It examines how government officials and voters choose. 12- A Fictional Tale Decisions for a congressman: Which tariff to vote for? Which group of population to choose to cut funding from? How to allocate licenses? How to protect jobs in your district? Every congressman tends to favor powerful interest groups and puts his voters interest above the needs for the country. 12- Government Officials Economists assume that government officials act in their own interests. Government officials are as self-interested as businesspeople. However, there is no invisible hand guiding politicians. 12- Taking From the Weak in Dictatorships To maintain power many dictators follow a three-step formula: Take wealth from some disfavored group. Build support among some favored group by giving them the wealth acquired through the earlier step. Suppress or kill the disfavored group so they can’t harm the dictator. 12- Taking From the Weak in Democracies In modern democracies, even disfavored groups can vote. Politicians in democracies use a similar formula. Take wealth from politically inactive groups. Build support among politically active groups by giving them the wealth acquired through the earlier step. Politically active groups always vote and contribute to campaigns. In the U.S., the elderly vote is a much higher percentage than other demographic groups. 12- Concentrated vs. Diffused Interest Groups Generally, producers are the .