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What Should Government Pay For?

Nov 13, 2010 • Economic Debates, Economic History, Government, Macroeconomic Measurement • 137 Views    No Comments

Topping its front page with “CUT, RAISE, RAISE, LOWER, REPEAL, SCRAP, CUT, CUT,” The Wall Street Journal told readers some of the new deficit commission’s proposals. 1) For defense spending, the cut would be $100 billion. 2) The Social Security age would rise to 69 by 2075. 3) The gas tax would go up 15 cents. 4) The corporate tax rate would go down to 26%. 5) The alternative minimum tax would be repealed. 6) There would no longer be deductions for mortgages over 500k. 7) The federal work force would be cut by 10%. 8) Farm subsidies would drop by $3 billion.

For each proposal, already, a mountain of pro and con opinions is building. For example, just for changing the Social Security retirement age, the list of arguments on both sides is long because affluence, health, job history, and gender all relate to how Social Security impacts you. Supporters point out that when Social Security was passed in 1935, the average life span was, at 61.7, 3.3 years less than the retirement age. In 2035, 20% of the U.S. population is projected to be 65 or older. Responding, economist Paul Krugman says, “working until you’re 69…is a lot harder…for…Americans who still do physical labor.” Also, he says that high earners live longer.

The Economic Lesson

Defined on Planet Money, a public good is “something that we all need that will make our lives better, but the market will not and cannot provide.”  Podcast examples included lighthouses and autopsies.

Should government pay only for “public goods?” We would not have a deficit problem.

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