Financial Health of the Government

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Financial Health of the Government
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1
Much valuable discussion fails to
occur because of pride and prejudice.
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2
Prejudice
• Humans who work in the private sector are greedy.
• Humans who work in the public sector are altruistic.
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3
Truth
• The same humans with the same strengths, failings, and
desires occupy both sectors.
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4
Pride
• Economic truths are opinion.
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5
Truth
• The whole point of economic theory is to describe the real
world.
• Disconnects arise not from a failure of economics but from
a lack of understanding of what economics is telling us.
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6
Pride
• Inability or unwillingness to admit limitations.
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7
Truth
• It is impossible for an economy to provide everything that
everyone wants.
• Corollary: A majority vote does not bestow magical
powers to circumvent limitations.
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8
What is the point of this lecture?
Data and logic pwn pride and prejudice.
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9
The Players and the Goals
In this experiment, each team controls a firm that sells to a
group of consumers.
Firms select what price to charge.
 Lower price means consumers purchase more units.
 Higher price means consumers purchase fewer units.
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10
The Players and the Goals
Goal: Make the most profit possible.
Profit = Revenue – Cost
(Price per unit) (Units sold)
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($1) (Units sold)
11
Example
You will see a demand
schedule like the one to
the right.
The chart shows the
number of units you will
sell depending on what
price you decide to charge.
You must choose what
price to charge for your
product so as to maximize
your profit.
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Price per Unit
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
$6.50
$7.00
$7.50
$8.00
$8.50
$9.00
$9.50
$10.00
$10.50
$11.00
$11.50
$12.00
$12.50
$13.00
$13.50
$14.00
$14.50
$15.00
Quantity Sold
940
930
920
910
900
890
880
870
860
850
840
830
820
810
800
790
780
770
760
750
740
730
720
710
700
690
680
670
660
650
Price per Unit
$15.50
$16.00
$16.50
$17.00
$17.50
$18.00
$18.50
$19.00
$19.50
$20.00
$20.50
$21.00
$21.50
$22.00
$22.50
$23.00
$23.50
$24.00
$24.50
$25.00
$25.50
$26.00
$26.50
$27.00
$27.50
$28.00
$28.50
$29.00
$29.50
$30.00
Quantity Sold
640
630
620
610
600
590
580
570
560
550
540
530
520
510
500
490
480
470
460
450
440
430
420
410
400
390
380
370
360
350
12
Example
Suppose you charge
$10.00 per unit.
How many units will you
sell?
750
What is your revenue?
($10) (750) = $7,500
What is your cost?
($1) (750) = $750
What is your profit?
$7,500 – $750 = $6,750
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Price per Unit
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
$6.50
$7.00
$7.50
$8.00
$8.50
$9.00
$9.50
$10.00
$10.50
$11.00
$11.50
$12.00
$12.50
$13.00
$13.50
$14.00
$14.50
$15.00
Quantity Sold
940
930
920
910
900
890
880
870
860
850
840
830
820
810
800
790
780
770
760
750
740
730
720
710
700
690
680
670
660
650
Price per Unit
$15.50
$16.00
$16.50
$17.00
$17.50
$18.00
$18.50
$19.00
$19.50
$20.00
$20.50
$21.00
$21.50
$22.00
$22.50
$23.00
$23.50
$24.00
$24.50
$25.00
$25.50
$26.00
$26.50
$27.00
$27.50
$28.00
$28.50
$29.00
$29.50
$30.00
Quantity Sold
640
630
620
610
600
590
580
570
560
550
540
530
520
510
500
490
480
470
460
450
440
430
420
410
400
390
380
370
360
350
13
Example
Suppose you charge
$20.00 per unit.
How many units will you
sell?
550
What is your revenue?
($20) (550) = $11,000
What is your cost?
($1) (550) = $550
What is your profit?
Price per Unit
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
$6.50
$7.00
$7.50
$8.00
$8.50
$9.00
$9.50
$10.00
$10.50
$11.00
$11.50
$12.00
$12.50
$13.00
$13.50
$14.00
$14.50
$15.00
Quantity Sold
940
930
920
910
900
890
880
870
860
850
840
830
820
810
800
790
780
770
760
750
740
730
720
710
700
690
680
670
660
650
Price per Unit
$15.50
$16.00
$16.50
$17.00
$17.50
$18.00
$18.50
$19.00
$19.50
$20.00
$20.50
$21.00
$21.50
$22.00
$22.50
$23.00
$23.50
$24.00
$24.50
$25.00
$25.50
$26.00
$26.50
$27.00
$27.50
$28.00
$28.50
$29.00
$29.50
$30.00
Quantity Sold
640
630
620
610
600
590
580
570
560
550
540
530
520
510
500
490
480
470
460
450
440
430
420
410
400
390
380
370
360
350
$11,000 – $550 = $10,450
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14
Example
Suppose you charge
$10.00 per unit.
Profit = $6,750
Suppose you charge
$20.00 per unit.
Profit = $10,450
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Of these, $20.00 is the
better price to charge.
15
Round 1
Choose the
price you will
charge for your
product.
Every unit you
sell costs you
$1 to produce.
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Price per Unit
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
$6.50
$7.00
$7.50
$8.00
$8.50
$9.00
$9.50
$10.00
$10.50
$11.00
$11.50
$12.00
$12.50
$13.00
$13.50
$14.00
$14.50
$15.00
Quantity Sold
137
134
131
128
125
123
120
117
114
112
109
106
104
101
98
96
93
91
88
86
84
81
79
77
74
72
70
68
66
64
Price per Unit
$15.50
$16.00
$16.50
$17.00
$17.50
$18.00
$18.50
$19.00
$19.50
$20.00
$20.50
$21.00
$21.50
$22.00
$22.50
$23.00
$23.50
$24.00
$24.50
$25.00
$25.50
$26.00
$26.50
$27.00
$27.50
$28.00
$28.50
$29.00
$29.50
$30.00
Quantity Sold
61
59
57
55
53
51
50
48
46
44
42
40
39
37
35
34
32
31
29
28
26
25
23
22
20
19
18
16
15
14
16
Round 1
Price per Unit
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
$6.50
$7.00
$7.50
$8.00
$8.50
$9.00
$9.50
$10.00
$10.50
$11.00
$11.50
$12.00
$12.50
$13.00
$13.50
$14.00
$14.50
$15.00
Quantity Sold
137
134
131
128
125
123
120
117
114
112
109
106
104
101
98
96
93
91
88
86
84
81
79
77
74
72
70
68
66
64
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Revenue
$68.50
$134.00
$196.50
$256.00
$312.50
$369.00
$420.00
$468.00
$513.00
$560.00
$599.50
$636.00
$676.00
$707.00
$735.00
$768.00
$790.50
$819.00
$836.00
$860.00
$882.00
$891.00
$908.50
$924.00
$925.00
$936.00
$945.00
$952.00
$957.00
$960.00
Cost
$137.00
$134.00
$131.00
$128.00
$125.00
$123.00
$120.00
$117.00
$114.00
$112.00
$109.00
$106.00
$104.00
$101.00
$98.00
$96.00
$93.00
$91.00
$88.00
$86.00
$84.00
$81.00
$79.00
$77.00
$74.00
$72.00
$70.00
$68.00
$66.00
$64.00
Profit
($68.50)
$0.00
$65.50
$128.00
$187.50
$246.00
$300.00
$351.00
$399.00
$448.00
$490.50
$530.00
$572.00
$606.00
$637.00
$672.00
$697.50
$728.00
$748.00
$774.00
$798.00
$810.00
$829.50
$847.00
$851.00
$864.00
$875.00
$884.00
$891.00
$896.00
Price per Unit
$15.50
$16.00
$16.50
$17.00
$17.50
$18.00
$18.50
$19.00
$19.50
$20.00
$20.50
$21.00
$21.50
$22.00
$22.50
$23.00
$23.50
$24.00
$24.50
$25.00
$25.50
$26.00
$26.50
$27.00
$27.50
$28.00
$28.50
$29.00
$29.50
$30.00
Quantity Sold
61
59
57
55
53
51
50
48
46
44
42
40
39
37
35
34
32
31
29
28
26
25
23
22
20
19
18
16
15
14
Revenue
$945.50
$944.00
$940.50
$935.00
$927.50
$918.00
$925.00
$912.00
$897.00
$880.00
$861.00
$840.00
$838.50
$814.00
$787.50
$782.00
$752.00
$744.00
$710.50
$700.00
$663.00
$650.00
$609.50
$594.00
$550.00
$532.00
$513.00
$464.00
$442.50
$420.00
Cost
$61.00
$59.00
$57.00
$55.00
$53.00
$51.00
$50.00
$48.00
$46.00
$44.00
$42.00
$40.00
$39.00
$37.00
$35.00
$34.00
$32.00
$31.00
$29.00
$28.00
$26.00
$25.00
$23.00
$22.00
$20.00
$19.00
$18.00
$16.00
$15.00
$14.00
Profit
$884.50
$885.00
$883.50
$880.00
$874.50
$867.00
$875.00
$864.00
$851.00
$836.00
$819.00
$800.00
$799.50
$777.00
$752.50
$748.00
$720.00
$713.00
$681.50
$672.00
$637.00
$625.00
$586.50
$572.00
$530.00
$513.00
$495.00
$448.00
$427.50
$406.00
17
Round 2: Tax the Consumers
In this round, consumers will pay an additional $5 per unit tax.
You choose a price. The consumers pay that price per unit to you plus
they pay another $5 per unit to the government.
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18
Round 2
In this round,
consumers will pay
an additional $5 per
unit tax.
If you charge $7, how
many units will
consumers buy?
710
What is your revenue?
($7) (710) = $4970
What is your cost?
($1) (710) = $710
What is your profit?
Price per Unit
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
$6.50
$7.00
$7.50
$8.00
$8.50
$9.00
$9.50
$10.00
$10.50
$11.00
$11.50
$12.00
$12.50
$13.00
$13.50
$14.00
$14.50
$15.00
Quantity Sold
940
930
920
910
900
890
880
870
860
850
840
830
820
810
800
790
780
770
760
750
740
730
720
710
700
690
680
670
660
650
You charge $7.
Price per Unit
$15.50
$16.00
$16.50
$17.00
$17.50
$18.00
$18.50
$19.00
$19.50
$20.00
$20.50
$21.00
$21.50
$22.00
$22.50
$23.00
$23.50
$24.00
$24.50
$25.00
$25.50
$26.00
$26.50
$27.00
$27.50
$28.00
$28.50
$29.00
$29.50
$30.00
Quantity Sold
640
630
620
610
600
590
580
570
560
550
540
530
520
510
500
490
480
470
460
450
440
430
420
410
400
390
380
370
360
350
Consumers pay $7 + $5 = $12.
Consumers buy 710 units.
($7)(710) – ($1)(710) = $4260
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19
Round 2
Choose the price
you will charge for
your product.
The consumer
pays your price
plus another $5 to
the government.
Every unit you sell
costs you $1 to
produce.
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Price per Unit
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
$6.50
$7.00
$7.50
$8.00
$8.50
$9.00
$9.50
$10.00
$10.50
$11.00
$11.50
$12.00
$12.50
$13.00
$13.50
$14.00
$14.50
$15.00
Quantity Sold
137
134
131
128
125
123
120
117
114
112
109
106
104
101
98
96
93
91
88
86
84
81
79
77
74
72
70
68
66
64
Price per Unit
$15.50
$16.00
$16.50
$17.00
$17.50
$18.00
$18.50
$19.00
$19.50
$20.00
$20.50
$21.00
$21.50
$22.00
$22.50
$23.00
$23.50
$24.00
$24.50
$25.00
$25.50
$26.00
$26.50
$27.00
$27.50
$28.00
$28.50
$29.00
$29.50
$30.00
Quantity Sold
61
59
57
55
53
51
50
48
46
44
42
40
39
37
35
34
32
31
29
28
26
25
23
22
20
19
18
16
15
14
20
Round 2: Tax the Consumers
Price per Unit
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
$6.50
$7.00
$7.50
$8.00
$8.50
$9.00
$9.50
$10.00
$10.50
$11.00
$11.50
$12.00
$12.50
$13.00
$13.50
$14.00
$14.50
$15.00
Quantity Sold
109
106
104
101
98
96
93
91
88
86
84
81
79
77
74
72
70
68
66
64
61
59
57
55
53
51
50
48
46
44
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Revenue
$54.50
$106.00
$156.00
$202.00
$245.00
$288.00
$325.50
$364.00
$396.00
$430.00
$462.00
$486.00
$513.50
$539.00
$555.00
$576.00
$595.00
$612.00
$627.00
$640.00
$640.50
$649.00
$655.50
$660.00
$662.50
$663.00
$675.00
$672.00
$667.00
$660.00
Cost
$109.00
$106.00
$104.00
$101.00
$98.00
$96.00
$93.00
$91.00
$88.00
$86.00
$84.00
$81.00
$79.00
$77.00
$74.00
$72.00
$70.00
$68.00
$66.00
$64.00
$61.00
$59.00
$57.00
$55.00
$53.00
$51.00
$50.00
$48.00
$46.00
$44.00
Profit
($54.50)
$0.00
$52.00
$101.00
$147.00
$192.00
$232.50
$273.00
$308.00
$344.00
$378.00
$405.00
$434.50
$462.00
$481.00
$504.00
$525.00
$544.00
$561.00
$576.00
$579.50
$590.00
$598.50
$605.00
$609.50
$612.00
$625.00
$624.00
$621.00
$616.00
Price per Unit
$15.50
$16.00
$16.50
$17.00
$17.50
$18.00
$18.50
$19.00
$19.50
$20.00
$20.50
$21.00
$21.50
$22.00
$22.50
$23.00
$23.50
$24.00
$24.50
$25.00
Quantity Sold
42
40
39
37
35
34
32
31
29
28
26
25
23
22
20
19
18
16
15
14
Revenue
$651.00
$640.00
$643.50
$629.00
$612.50
$612.00
$592.00
$589.00
$565.50
$560.00
$533.00
$525.00
$494.50
$484.00
$450.00
$437.00
$423.00
$384.00
$367.50
$350.00
Cost
$42.00
$40.00
$39.00
$37.00
$35.00
$34.00
$32.00
$31.00
$29.00
$28.00
$26.00
$25.00
$23.00
$22.00
$20.00
$19.00
$18.00
$16.00
$15.00
$14.00
Profit
$609.00
$600.00
$604.50
$592.00
$577.50
$578.00
$560.00
$558.00
$536.50
$532.00
$507.00
$500.00
$471.50
$462.00
$430.00
$418.00
$405.00
$368.00
$352.50
$336.00
21
Round 3: Tax the Producers
In this round, producers will pay a $5 per unit tax for every unit
they sell.
The price consumers pay is the price you charge.
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22
Round 3
In this round,
producers will pay a $5
per unit tax.
Your cost per unit is
now $1 (for the unit)
plus another $5 (for
the tax).
If you charge $7,
how many units will
consumers buy?
810
What is your profit?
Price per Unit
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
$6.50
$7.00
$7.50
$8.00
$8.50
$9.00
$9.50
$10.00
$10.50
$11.00
$11.50
$12.00
$12.50
$13.00
$13.50
$14.00
$14.50
$15.00
Quantity Sold
940
930
920
910
900
890
880
870
860
850
840
830
820
810
800
790
780
770
760
750
740
730
720
710
700
690
680
670
660
650
Price per Unit
$15.50
$16.00
$16.50
$17.00
$17.50
$18.00
$18.50
$19.00
$19.50
$20.00
$20.50
$21.00
$21.50
$22.00
$22.50
$23.00
$23.50
$24.00
$24.50
$25.00
$25.50
$26.00
$26.50
$27.00
$27.50
$28.00
$28.50
$29.00
$29.50
$30.00
Quantity Sold
640
630
620
610
600
590
580
570
560
550
540
530
520
510
500
490
480
470
460
450
440
430
420
410
400
390
380
370
360
350
($7 )(810) – ($1)(101) – ($5)(101) = $5,064
www.antonydavies.org
23
Round 3
Choose the
price you will
charge for your
product.
Every unit you
sell costs you
$1 to produce.
In addition, you
pay the
government $5
for each unit
you produce.
www.antonydavies.org
Price per Unit
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
$6.50
$7.00
$7.50
$8.00
$8.50
$9.00
$9.50
$10.00
$10.50
$11.00
$11.50
$12.00
$12.50
$13.00
$13.50
$14.00
$14.50
$15.00
Quantity Sold
137
134
131
128
125
123
120
117
114
112
109
106
104
101
98
96
93
91
88
86
84
81
79
77
74
72
70
68
66
64
Price per Unit
$15.50
$16.00
$16.50
$17.00
$17.50
$18.00
$18.50
$19.00
$19.50
$20.00
$20.50
$21.00
$21.50
$22.00
$22.50
$23.00
$23.50
$24.00
$24.50
$25.00
$25.50
$26.00
$26.50
$27.00
$27.50
$28.00
$28.50
$29.00
$29.50
$30.00
Quantity Sold
61
59
57
55
53
51
50
48
46
44
42
40
39
37
35
34
32
31
29
28
26
25
23
22
20
19
18
16
15
14
24
Round 3: Tax the Producers
Price per Unit
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
$6.50
$7.00
$7.50
$8.00
$8.50
$9.00
$9.50
$10.00
$10.50
$11.00
$11.50
$12.00
$12.50
$13.00
$13.50
$14.00
$14.50
$15.00
Quantity Sold
137
134
131
128
125
123
120
117
114
112
109
106
104
101
98
96
93
91
88
86
84
81
79
77
74
72
70
68
66
64
www.antonydavies.org
Revenue
$68.50
$134.00
$196.50
$256.00
$312.50
$369.00
$420.00
$468.00
$513.00
$560.00
$599.50
$636.00
$676.00
$707.00
$735.00
$768.00
$790.50
$819.00
$836.00
$860.00
$882.00
$891.00
$908.50
$924.00
$925.00
$936.00
$945.00
$952.00
$957.00
$960.00
Cost
$822.00
$804.00
$786.00
$768.00
$750.00
$738.00
$720.00
$702.00
$684.00
$672.00
$654.00
$636.00
$624.00
$606.00
$588.00
$576.00
$558.00
$546.00
$528.00
$516.00
$504.00
$486.00
$474.00
$462.00
$444.00
$432.00
$420.00
$408.00
$396.00
$384.00
Profit
($753.50)
($670.00)
($589.50)
($512.00)
($437.50)
($369.00)
($300.00)
($234.00)
($171.00)
($112.00)
($54.50)
$0.00
$52.00
$101.00
$147.00
$192.00
$232.50
$273.00
$308.00
$344.00
$378.00
$405.00
$434.50
$462.00
$481.00
$504.00
$525.00
$544.00
$561.00
$576.00
Price per Unit
$15.50
$16.00
$16.50
$17.00
$17.50
$18.00
$18.50
$19.00
$19.50
$20.00
$20.50
$21.00
$21.50
$22.00
$22.50
$23.00
$23.50
$24.00
$24.50
$25.00
$25.50
$26.00
$26.50
$27.00
$27.50
$28.00
$28.50
$29.00
$29.50
$30.00
Quantity Sold
61
59
57
55
53
51
50
48
46
44
42
40
39
37
35
34
32
31
29
28
26
25
23
22
20
19
18
16
15
14
Revenue
$945.50
$944.00
$940.50
$935.00
$927.50
$918.00
$925.00
$912.00
$897.00
$880.00
$861.00
$840.00
$838.50
$814.00
$787.50
$782.00
$752.00
$744.00
$710.50
$700.00
$663.00
$650.00
$609.50
$594.00
$550.00
$532.00
$513.00
$464.00
$442.50
$420.00
Cost
$366.00
$354.00
$342.00
$330.00
$318.00
$306.00
$300.00
$288.00
$276.00
$264.00
$252.00
$240.00
$234.00
$222.00
$210.00
$204.00
$192.00
$186.00
$174.00
$168.00
$156.00
$150.00
$138.00
$132.00
$120.00
$114.00
$108.00
$96.00
$90.00
$84.00
Profit
$579.50
$590.00
$598.50
$605.00
$609.50
$612.00
$625.00
$624.00
$621.00
$616.00
$609.00
$600.00
$604.50
$592.00
$577.50
$578.00
$560.00
$558.00
$536.50
$532.00
$507.00
$500.00
$471.50
$462.00
$430.00
$418.00
$405.00
$368.00
$352.50
$336.00
25
Results
Retail Price
Per Unit Tax on Consumers
Per Unit Tax on Producers
No Tax
$15.00
$0.00
$0.00
Price Consumer Pays
Price Producer Receives
$15.00
$15.00
$18.50
$13.50
$18.50
$13.50
64
$0.00
50
$250.00
50
$250.00
Units Sold
Tax Revenue
Tax Consumers Tax Producers
$13.50
$18.50
$5.00
$0.00
$0.00
$5.00
In round 3, the government taxed the producers $5.
Won’t producers just pass the tax on to consumers?
www.antonydavies.org
26
Results
Retail Price
Per Unit Tax on Consumers
Per Unit Tax on Producers
No Tax
$15.00
$0.00
$0.00
Price Consumer Pays
Price Producer Receives
$15.00
$15.00
$18.50
$13.50
$18.50
$13.50
64
$0.00
50
$250.00
50
$250.00
Units Sold
Tax Revenue
Tax Consumers Tax Producers
$13.50
$18.50
$5.00
$0.00
$0.00
$5.00
Producers pass part of the tax ($3.50) on to consumers but
pay the remainder of the tax ($1.50) out of their profits.
www.antonydavies.org
27
Results
Retail Price
Per Unit Tax on Consumers
Per Unit Tax on Producers
No Tax
$15.00
$0.00
$0.00
Price Consumer Pays
Price Producer Receives
$15.00
$15.00
$18.50
$13.50
$18.50
$13.50
64
$0.00
50
$250.00
50
$250.00
Units Sold
Tax Revenue
Tax Consumers Tax Producers
$13.50
$18.50
$5.00
$0.00
$0.00
$5.00
In round 2, the government taxed the consumers $5.
Won’t consumers be forced to pay the full $5 tax?
www.antonydavies.org
28
Results
Retail Price
Per Unit Tax on Consumers
Per Unit Tax on Producers
No Tax
$15.00
$0.00
$0.00
Price Consumer Pays
Price Producer Receives
$15.00
$15.00
$18.50
$13.50
$18.50
$13.50
64
$0.00
50
$250.00
50
$250.00
Units Sold
Tax Revenue
Tax Consumers Tax Producers
$13.50
$18.50
$5.00
$0.00
$0.00
$5.00
Producers pay part of the tax ($1.50) out of their profits and
leave consumers to pay the remainder of the tax ($3.50).
www.antonydavies.org
29
Results
Retail Price
Per Unit Tax on Consumers
Per Unit Tax on Producers
No Tax
$15.00
$0.00
$0.00
Price Consumer Pays
Price Producer Receives
$15.00
$15.00
$18.50
$13.50
$18.50
$13.50
64
$0.00
50
$250.00
50
$250.00
Units Sold
Tax Revenue
Tax Consumers Tax Producers
$13.50
$18.50
$5.00
$0.00
$0.00
$5.00
Lesson #1: The government has no control over who ultimately
pays a tax.
(even when the producer is a monopolist)
www.antonydavies.org
30
Results
Retail Price
Per Unit Tax on Consumers
Per Unit Tax on Producers
No Tax
$15.00
$0.00
$0.00
Price Consumer Pays
Price Producer Receives
$15.00
$15.00
$18.50
$13.50
$18.50
$13.50
64
$0.00
50
$250.00
50
$250.00
Units Sold
Tax Revenue
Tax Consumers Tax Producers
$13.50
$18.50
$5.00
$0.00
$0.00
$5.00
When there was no tax, consumers bought 64 units.
A $5 per unit tax should generate ($5)(64) = $320 in tax revenue.
www.antonydavies.org
31
Results
Retail Price
Per Unit Tax on Consumers
Per Unit Tax on Producers
No Tax
$15.00
$0.00
$0.00
Price Consumer Pays
Price Producer Receives
$15.00
$15.00
$18.50
$13.50
$18.50
$13.50
64
$0.00
50
$250.00
50
$250.00
Units Sold
Tax Revenue
Tax Consumers Tax Producers
$13.50
$18.50
$5.00
$0.00
$0.00
$5.00
Instead of raising $320 in tax revenue,
the government only raises $250.
www.antonydavies.org
32
Results
Retail Price
Per Unit Tax on Consumers
Per Unit Tax on Producers
No Tax
$15.00
$0.00
$0.00
Price Consumer Pays
Price Producer Receives
$15.00
$15.00
$18.50
$13.50
$18.50
$13.50
64
$0.00
50
$250.00
50
$250.00
Units Sold
Tax Revenue
Tax Consumers Tax Producers
$13.50
$18.50
$5.00
$0.00
$0.00
$5.00
Lesson #2: The government determines the tax rate, not the tax
revenue.
(regardless of whom it taxes)
www.antonydavies.org
33
Lesson #1: The government has no control over who ultimately
pays a tax.
Lesson #2: The government determines the tax rate, not the tax
revenue.
www.antonydavies.org
34
What is “the debt”?
Debt held by the public
Intergovernmental debt
$9.7 trillion
$4.6 trillion
Total debt outstanding
$14.3 trillion
Unfunded obligations
Social Security
$15 trillion
Medicare
$35 trillion
Total unfunded obligations
$50 trillion
Total debt and unfunded obligations
www.antonydavies.org
$64 trillion
35
www.antonydavies.org
Germany's GDP
Intergovernmental Debt
China's GDP
Japan's GDP
Debt Held by the Public
United States' GDP
European Union's GDP
Unfunded Social Security
Obligations
Unfunded Medicare
Obligations
Earth's GDP
Total Debt and Unfunded
Obligations
2010 Federal Revenues
Trillions
$5.0
$4.5
$4.0
$3.5
$3.0
$2.5
$2.0
$1.5
$1.0
$0.5
$0.0
Data sources: US Department of the Treasury, CIA World Factbook
36
www.antonydavies.org
Germany's GDP
Intergovernmental Debt
China's GDP
Japan's GDP
Debt Held by the Public
United States' GDP
European Union's GDP
Unfunded Social Security
Obligations
Unfunded Medicare
Obligations
Earth's GDP
Total Debt and Unfunded
Obligations
2010 Federal Revenues
Trillions
$5.0
$4.5
$4.0
$3.5
$3.0
$2.5
$2.0
$1.5
$1.0
$0.5
$0.0
Data sources: US Department of the Treasury, CIA World Factbook
37
www.antonydavies.org
Germany's GDP
Intergovernmental Debt
China's GDP
Japan's GDP
Debt Held by the Public
United States' GDP
European Union's GDP
Unfunded Social Security
Obligations
Unfunded Medicare
Obligations
Earth's GDP
Total Debt and Unfunded
Obligations
2010 Federal Revenues
Trillions
$5.0
$4.5
$4.0
$3.5
$3.0
$2.5
$2.0
$1.5
$1.0
$0.5
$0.0
Data sources: US Department of the Treasury, CIA World Factbook
38
www.antonydavies.org
Germany's GDP
Intergovernmental Debt
China's GDP
Japan's GDP
Debt Held by the Public
United States' GDP
European Union's GDP
Unfunded Social Security
Obligations
Unfunded Medicare
Obligations
Earth's GDP
Total Debt and Unfunded
Obligations
2010 Federal Revenues
Trillions
$16
$14
$12
$10
$8
$6
$4
$2
$0
Data sources: US Department of the Treasury, CIA World Factbook
39
www.antonydavies.org
Germany's GDP
Intergovernmental Debt
China's GDP
Japan's GDP
Debt Held by the Public
United States' GDP
European Union's GDP
Unfunded Social Security
Obligations
Unfunded Medicare
Obligations
Earth's GDP
Total Debt and Unfunded
Obligations
2010 Federal Revenues
Trillions
$16
$14
$12
$10
$8
$6
$4
$2
$0
Data sources: US Department of the Treasury, CIA World Factbook
40
www.antonydavies.org
Germany's GDP
Intergovernmental Debt
China's GDP
Japan's GDP
Debt Held by the Public
United States' GDP
European Union's GDP
Unfunded Social Security
Obligations
Unfunded Medicare
Obligations
Earth's GDP
Total Debt and Unfunded
Obligations
2010 Federal Revenues
Trillions
$16
$14
$12
$10
$8
$6
$4
$2
$0
Data sources: US Department of the Treasury, CIA World Factbook
41
www.antonydavies.org
Germany's GDP
Intergovernmental Debt
China's GDP
Japan's GDP
Debt Held by the Public
United States' GDP
European Union's GDP
Unfunded Social Security
Obligations
Unfunded Medicare
Obligations
Earth's GDP
Total Debt and Unfunded
Obligations
2010 Federal Revenues
Trillions
$35
$30
$25
$20
$15
$10
$5
$0
Data sources: US Department of the Treasury, CIA World Factbook
42
www.antonydavies.org
Germany's GDP
Intergovernmental Debt
China's GDP
Japan's GDP
Debt Held by the Public
United States' GDP
European Union's GDP
Unfunded Social Security
Obligations
Unfunded Medicare
Obligations
Earth's GDP
Total Debt and Unfunded
Obligations
2010 Federal Revenues
Trillions
$70
$60
$50
$40
$30
$20
$10
$0
Data sources: US Department of the Treasury, CIA World Factbook
43
www.antonydavies.org
Germany's GDP
Intergovernmental Debt
China's GDP
Japan's GDP
Debt Held by the Public
United States' GDP
European Union's GDP
Unfunded Social Security
Obligations
Unfunded Medicare
Obligations
Earth's GDP
Total Debt and Unfunded
Obligations
2010 Federal Revenues
Trillions
$70
$60
$50
$40
$30
$20
$10
$0
Data sources: US Department of the Treasury, CIA World Factbook
44
www.antonydavies.org
Germany's GDP
Intergovernmental Debt
China's GDP
Japan's GDP
Debt Held by the Public
United States' GDP
European Union's GDP
Unfunded Social Security
Obligations
$60
Unfunded Medicare
Obligations
Earth's GDP
Total Debt and Unfunded
Obligations
2010 Federal Revenues
Trillions
$70
Interest payments on $65 trillion = $1.9 trillion
2010 Federal revenue = $2.3 trillion
$50
$40
$30
$20
$10
$0
Data sources: US Department of the Treasury, CIA World Factbook
45
Millions, Billions, Trillions
(blah, blah, blah)
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46
$100
www.antonydavies.org
47
$10,000
A stack of $100 bills, ½ inch high.
www.antonydavies.org
48
$1 million
100 packets of $10,000.
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49
$100 million
$100 million fits on a standard pallet.
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50
$1 billion
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51
$1 trillion
About twice the amount of money the U.S. government spends on interest on
the national debt in one year.
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52
$14 trillion
The value of all goods and services produced in the United States in one year.
Also, the U.S. national debt (as of 2011).
www.antonydavies.org
53
$65 trillion
Total Federal debt and obligations (as of 2011).
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54
Scale down the Federal government to the size of
the average U.S. household.
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55
The Federal government collects
about $2.3 trillion in taxes per year
(all tax revenues combined).
The average U.S. household
earns about $50,000 per year.
Data source: Bureau of Economic Analysis
www.antonydavies.org
56
$2.3 trillion
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$50,000
57
If the Federal government were the size of a household:
Income this year
Spending this year
$50,000
$86,000
Charge this year
Credit card balance
$36,000
$320,000
Annual interest
$10,000
Data source: Bureau of Economic Analysis
www.antonydavies.org
58
In perspective…
In March and in response to growing calls for fiscal
responsibility, the President announced a $300 million cut in
Community Development Block Grants.
The cuts will fund the government for
a total of 45 minutes.
www.antonydavies.org
59
Just because the debt is large doesn’t mean much.
Hasn’t it always been this large?
www.antonydavies.org
60
1790
1795
1800
1805
1810
1815
1820
1825
1830
1835
1840
1845
1850
1855
1860
1865
1870
1875
1880
1885
1890
1895
1900
1905
1910
1915
1920
1925
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
Federal Debt per GDP
Federal Debt as a Fraction of GDP
140%
War of 1812
100%
www.antonydavies.org
Civil War
1929 Crash
WWI
WWII
120%
Great Recession
Reagan & Bush
80%
60%
40%
20%
0%
Data source: TreasuryDirect.gov, MeasuringWorth.com
61
1790
1795
1800
1805
1810
1815
1820
1825
1830
1835
1840
1845
1850
1855
1860
1865
1870
1875
1880
1885
1890
1895
1900
1905
1910
1915
1920
1925
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
Federal Debt per GDP
Federal Debt and Unfunded Obligations as a Fraction of GDP
450%
You are here.
400%
350%
300%
250%
200%
150%
100%
50%
0%
Data source: TreasuryDirect.gov, MeasuringWorth.com
www.antonydavies.org
62
What causes debt?
Deficit
Deficit
Deficit
Deficit
Debt
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63
What causes deficit?
www.antonydavies.org
64
Perhaps we have a revenue problem.
?
Revenue
?
Revenue
Spending
?
Spending
Revenue
Deficit
Spending
Deficit
Deficit
Deficit
?
Revenue
www.antonydavies.org
Spending
Debt
65
Billions
$3,000
Federal revenue has risen 6.9% per year (on average).
$2,500
$2,000
$1,500
$1,000
$500
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
1958
1956
1954
$0
Federal Revenue
Data source: US Department of the Treasury
www.antonydavies.org
66
Not fair. Prices have been rising over time.
www.antonydavies.org
67
Billions
$3,000
Federal revenue has risen 3.3% faster then inflation per
year (on average).
$2,500
$2,000
$1,500
$1,000
$500
Federal Revenue
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
1958
1956
1954
$0
Federal Revenue (adjusted for inflation)
Data source: US Department of the Treasury
www.antonydavies.org
68
Not fair. The population has been growing over time.
www.antonydavies.org
69
Billions
$3,000
$10,000
Federal revenue per person has risen 2.2% faster then
inflation per year (on average).
$9,000
$2,500
$8,000
$7,000
$2,000
$6,000
$1,500
$5,000
$4,000
$1,000
$3,000
$2,000
$500
$1,000
Federal Revenue
Federal Revenue (adjusted for inflation)
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
1958
1956
$0
1954
$0
Federal Revenue (adjusted for inflation, per capita)
Data source: US Department of the Treasury
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70
Tax revenue may be rising, but it isn’t rising fast enough.
To reduce the deficit, we need to raise tax rates.
www.antonydavies.org
71
Sources of Federal Revenue (as fraction of total revenue)
50%
45.5%
Personal income and payroll
taxes comprise more than 80%
of Federal tax revenue.
Sources of Federal Revenue (average 2000-2009)
45%
40%
36.5%
35%
30%
Lesson #1: The government has no control
over who ultimately pays a tax.
25%
20%
15%
10.5%
10%
5%
3.2%
1.3%
1.1%
1.9%
0%
Personal Income
Tax
Social Insurance Corporate Income
Tax
Tax
Excise Tax
Estate and Gift Tax Customs Duties
Miscellaneous
Revenue
Data source: Congressional Budget Office
www.antonydavies.org
72
100%
This is the top marginal income tax
rate over time.
90%
80%
What would you expect tax revenue
as a fraction of GDP to be?
70%
60%
50%
40%
30%
20%
10%
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
1958
1956
1954
0%
Top Marginal Income Tax Rate
Data sources: Internal Revenue Service, Bureau of the Census
www.antonydavies.org
73
100%
Many people would expect tax
revenue to fluctuate with the tax rate.
90%
80%
70%
60%
50%
40%
30%
20%
10%
Federal Revenue as % of GDP
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
1958
1956
1954
0%
Top Marginal Income Tax Rate
Data sources: Internal Revenue Service, Bureau of the Census
www.antonydavies.org
74
100%
Some might expect tax revenue to
fluctuate inversely with the tax rate.
90%
80%
70%
60%
50%
40%
30%
20%
10%
Federal Revenue as % of GDP
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
1958
1956
1954
0%
Top Marginal Income Tax Rate
Data sources: Internal Revenue Service, Bureau of the Census
www.antonydavies.org
75
100%
Top Marginal Rate
30%
50%
70%
90%
90%
80%
Revenue per GDP
18%
18%
17%
15%
70%
60%
50%
40%
30%
Regardless of tax rates, federal revenue
has remained at 18% (± 2%) of GDP.
20%
10%
Federal Revenue as % of GDP
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
1958
1956
1954
0%
Top Marginal Income Tax Rate
Data sources: Internal Revenue Service, Bureau of the Census
www.antonydavies.org
Lesson #2: The government determines the
tax rate, not the tax revenue.
76
50%
45%
40%
35%
Average Marginal Rate Revenue per GDP
25% to 30%
15%
30% to 35%
17%
35% to 40%
18%
40% to 45%
18%
30%
25%
20%
15%
10%
5%
Federal Revenue as % of GDP
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
1958
1956
1954
0%
Average Marginal Income Tax Rate
Data sources: Internal Revenue Service, Bureau of the Census
www.antonydavies.org
77
25%
20%
15%
10%
SS & Medicare Rate
Revenue per GDP
< 5%
15%
5% to 10%
17%
10% to 15%
17%
> 15% 18%
5%
Federal Revenue as % of GDP
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
1958
1956
1954
0%
Social Security and Medicare Rate
Data sources: Internal Revenue Service, Bureau of the Census, Barro and Redlick (2009)
www.antonydavies.org
78
50%
Effective Corporate Rate
Revenue per GDP
< 25% 18%
25% to 35%
18%
> 35% 17%
45%
40%
35%
30%
25%
20%
15%
10%
5%
Federal Revenue as % of GDP
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
1958
1956
1954
0%
Effective Corporate Tax Rate
Data sources: Internal Revenue Service, Bureau of the Census, Tax Foundation
www.antonydavies.org
79
45%
Capital Gains Rate
Revenue per GDP
< 20% 18%
20% to 30%
17%
> 30% 18%
40%
35%
30%
25%
20%
15%
10%
5%
Federal Revenue as % of GDP
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
1958
1956
1954
0%
Capital Gains Tax Rate
Data sources: Internal Revenue Service, Bureau of the Census
www.antonydavies.org
80
100%
90%
80%
70%
60%
Total of All Rates Revenue per GDP
< 70% 16%
70% to 80%
18%
> 80% 18%
50%
40%
30%
20%
10%
Federal Revenue as % of GDP
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
1958
1956
1954
0%
All Income Tax Rates Combined
Data sources: Internal Revenue Service, Bureau of the Census, Barro and Redlick (2009), Tax Foundation
www.antonydavies.org
81
If revenue is a fixed 18% of GDP, then the debt problem
must really be a spending problem.
Revenue
Revenue
Spending
Spending
Revenue
Deficit
Deficit
Deficit
Deficit
Revenue
www.antonydavies.org
Spending
Spending
Debt
82
$12,000
The average price level has
risen 700% since 1954.
Annual Cost per Person
$10,000
$8,000
$6,000
$4,000
$2,000
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
$0
Average Price Level
Data sources: Bureau of Labor Statistics, Bureau of Economic Analysis
www.antonydavies.org
83
$12,000
The average price level has
risen 700% since 1954.
Annual Cost per Person
$10,000
The per-person cost of the Federal
government has risen 3,000% since 1954.
$8,000
$6,000
$4,000
$2,000
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
$0
Average Price Level
Cost of Federal Government
Data sources: Bureau of Labor Statistics, Bureau of Economic Analysis
www.antonydavies.org
84
$12,000
Annual Cost per Person
$10,000
The average price level has
risen 700% since 1954.
The per-person cost of the Federal
government has risen 3,000% since 1954.
$8,000
$6,000
The cost of health care has
only risen 2,000% since 1954.
$4,000
$2,000
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
$0
Average Price Level
Health Care
Cost of Federal Government
Data sources: Bureau of Labor Statistics, Bureau of the Census
www.antonydavies.org
85
Fine. Government spending is rising, but it’s because of
wars and NASA and subsidies to oil companies…
www.antonydavies.org
86
2011 Federal Spending
$2,000
Mandatory spending is 68% of the budget.
$1,800
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
Entitlements Interest on the
Debt
Other
Mandatory
Spending
National
Defense
Everything Else
Deficit
Data source: The President’s Budget for Fiscal Year 2011, Office of Management and Budget
www.antonydavies.org
87
Reconsider revenue
We only get 18% of GDP in revenue, so let’s stimulate GDP!
Spend more!
GDP grows!
18% x
www.antonydavies.org
=

88
Federal Reserve =
$1,500 b.
TARP = $356 b.
Total (net) stimulus = $3 trillion
Financial Initiatives =
$366 b.
Housing Initiatives =
$130 b.
Unemployment pre-stimulus = 6%
Unemployment
post-stimulus = 10%
Stimulus
= $578 b.
Data source: money.cnn.com/news/storysupplement/economy/bailouttracker/
www.antonydavies.org
89
Historically, how has the economy reacted to stimulus
spending?
www.antonydavies.org
90
Stimulus Spending and Economic Growth
4%
How should changes in
Federal spending be related
to economic growth?
2%
-6%
More economic activity
RGDP per Capita Growth
3%
1%
0%
-4%
-2%
0%
2%
4%
6%
-1%
-2%
-3%
More government spending
-4%
Change in Federal Outlays as % of GDP
Data source: Bureau of Economic Analysis, National Income and Product Accounts
www.antonydavies.org
91
Stimulus Spending and Economic Growth
4%
RGDP per Capita Growth
If stimulus spending
worked, we should see a
relationship like this.
3%
2%
1%
0%
-6%
-4%
-2%
0%
2%
4%
6%
-1%
-2%
-3%
-4%
Change in Federal Outlays as % of GDP
Data source: Bureau of Economic Analysis, National Income and Product Accounts
www.antonydavies.org
92
Stimulus Spending and Economic Growth (1954.1 to 2011.1)
4%
RGDP per Capita Growth
3%
2%
1%
0%
-6%
-4%
-2%
0%
2%
4%
6%
-1%
-2%
-3%
Increased government spending does not
appear to increase economic activity.
-4%
Change in Federal Outlays as % of GDP
Data source: Bureau of Economic Analysis, National Income and Product Accounts
www.antonydavies.org
93
Maybe stimulus spending doesn’t have an immediate
effect. What is the effect over time?
www.antonydavies.org
94
Stimulus Spending and Economic Growth (1954.1 to 2011.1)
RGDP per Capita Growth 1 Year Later
4%
3%
2%
1%
0%
-6%
-4%
-2%
0%
2%
4%
6%
-1%
-2%
-3%
Increased government spending does
not appear to increase economic
activity one year in the future.
-4%
Change in Federal Outlays as % of GDP
Data source: Bureau of Economic Analysis, National Income and Product Accounts
www.antonydavies.org
95
Stimulus Spending and Economic Growth (1954.1 to 2011.1)
RGDP per Capita Growth 2 Years Later
4%
3%
2%
1%
0%
-6%
-4%
-2%
0%
2%
4%
6%
-1%
-2%
-3%
Increased government spending does
not appear to increase economic
activity two years in the future.
-4%
Change in Federal Outlays as % of GDP
Data source: Bureau of Economic Analysis, National Income and Product Accounts
www.antonydavies.org
96
Maybe stimulus spending’s effects are cumulative. What
is the cumulative effect?
www.antonydavies.org
97
Stimulus Spending and Economic Growth (1954.1 to 2011.1)
3%
Increased government spending
appears to have a negative
cumulative effect over 4 quarters.
RGDP per Capita Growth (4QMA)
2%
-1.0%
2%
1%
1%
-0.5%
0%
0.0%
-1%
0.5%
1.0%
1.5%
2.0%
-1%
-2%
Change in Federal Outlays as % of GDP (4Q Moving Average)
Data source: Bureau of Economic Analysis, National Income and Product Accounts
www.antonydavies.org
98
Stimulus Spending and Economic Growth (1954.1 to 2011.1)
RGDP per Capita Growth 1 Year Later
(8QMA)
2%
-0.6%
Increased government spending
appears to have a negative
cumulative effect over 8 quarters.
2%
1%
1%
-0.4%
0%
-0.2%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
-1%
-1%
Change in Federal Outlays as % of GDP (8Q Moving Average)
Data source: Bureau of Economic Analysis, National Income and Product Accounts
www.antonydavies.org
99
How can this be?
 Government spending doesn’t create wealth; it moves
wealth.
 By definition, wealth is moved to places people would
not have willingly moved it. Hence, we end up worse
off.
www.antonydavies.org
100
Even if stimulus spending did work, evidence suggests
that the government is getting its timing backward.
www.antonydavies.org
101
Can the Government Get the Timing Right?
2%
50% of recessions
are over by now
Growth in Per Capita Real Federal Spending (annualized)
Recessions begin here
1%
0%
t
t+1
t+2
t+3
t+4
t+5
t+6
t+7
t+8
t+9
t+10
t+11
t+12
-1%
-2%
-3%
-4%
-5%
25% of recessions
are over by now
75% of recessions
are over by now
-6%
-7%
Quarter Relative to Recession that Began in Quarter t
Data sources: Bureau of Economic Analysis, National Bureau of Economic Research. Quarterly data, 1947 through 2009.
www.antonydavies.org
102
Can the Government Get the Timing Right?
2%
50% of recessions
are over by now
Growth in Per Capita Real Federal Spending (annualized)
Recessions begin here
1%
0%
t
t+1
t+2
t+3
t+4
t+5
t+6
t+7
t+8
t+9
t+10
t+11
t+12
-1%
-2%
-3%
-4%
-5%
25% of recessions
are over by now
75% of recessions
are over by now
-6%
-7%
Quarter Relative to Recession that Began in Quarter t
Data sources: Bureau of Economic Analysis, National Bureau of Economic Research. Quarterly data, 1947 through 2009.
www.antonydavies.org
103
How to avoid pride and prejudice
in favor of civil discourse?
Humans are humans no matter
who signs their paychecks.
There is no such
thing as a free lunch.
www.antonydavies.org
If you think that economic theory
doesn’t apply, you probably don’t
have all the facts.
104
Social Security
Disability Insurance
deficits begin.
2005
2010
You are here.
Social Security
Disability Insurance is
bankrupt.
2015
Medicare
deficits begin.
2020
Medicare is
bankrupt.
2025
Today's 50-year
olds retire.
Social Security
Retirement Insurance is
bankrupt.
2030
2035
2040
Today's 40-year
olds retire.
Data sources: 2009 Annual Reports of the Medicare and Social Security Boards of Trustees
www.antonydavies.org
105
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