For instance, the United States limits sugar imports. The resulting higher U.S. price for sugar greatly benefits farmers who grow sugarcane and sugar beets in the United States. U.S. corn farmers also benefit because the higher price for sugar increases demand for corn-based sweeteners that substitute for sugar. Companies in the United States that refine sugar and corn sweeteners also benefit. But candy and beverage companies that use sweeteners pay higher prices, which they pass on to millions of consumers who buy their products. However, these higher prices are spread across so many consumers that the increased cost for any one is very small. It therefore does not pay a consumer to spend much time, money, or effort to oppose the import barriers.
For sugar growers and refiners, of course, the higher price of sugar and the greater quantity of sugar they can produce and sell makes the import barriers something they value greatly. It is clearly in their interest to hire lobbyists and write letters to elected officials supporting these programs. When these officials hear from the people who benefit from the policies, but not from those who bear the costs, they may well decide to vote for the import restrictions. This can happen despite the fact that many studies indicate the total costs to consumers and the U.S. economy for these programs are much higher than the benefits received by sugar producers.
Special interest groups and issues are facts of life in the political
arena. One striking way to see that is to drive around the U.S. national
capital, Washington D.C., or a state capital and notice the number of
lobbying groups that have large offices near the capitol building. Or
simply look at the list of trade and professional associations in the
yellow pages for those cities. These lobbying groups are important and
useful to the political process in many ways. They provide information on
issues and legislation affecting their interests. But these special
interest groups also favor legislation that often benefits their members
at the expense of the overall public welfare.
E The Scope of Government in the U.S. Economy
The size of the government sector in the U.S. economy increased
dramatically during the 20th century. Federal revenues totaled less than
5 percent of total GDP in the early 1930s. In 1995 they made up 22
percent. State, county, and local government revenues represent an
additional 15 percent of GDP.
Although overall government revenues and spending are somewhat lower in
the United States than they are in many other industrialized market
economies, it is still important to consider why the size of government
has increased so rapidly during the 20th century. The general answer is
that the citizens of the United States have elected representatives who
have voted to increase government spending on a variety of programs and
to approve the taxes required to pay for these programs.
Actually, government spending has increased since the 1930s for a number of specific reasons. First, the different branches of government began to provide services that improved the economic security of individuals and families. These services include Social Security and Medicare for the elderly, as well as health care, food stamps, and subsidized housing programs for low-income families. In addition, new technology increased the cost of some government services; for example, sophisticated new weapons boosted the cost of national defense. As the economy grew, so did demand for the government to provide more and better transportation services, such as super highways and modern airports. As the population increased and became more prosperous, demand grew for government-financed universities, museums, parks, and arts programs. In other words, as incomes rose in the United States, people became more willing to be taxed to support more of the kinds of programs that government agencies provide.
Social changes have also contributed to the growing role of government.
As the structure of U.S. families changed, the government has
increasingly taken over services that were once provided mainly by
families. For instance, in past times, families provided housing and
health care for their elderly. Today, extended families with several
generations living together are rare, partly because workers move more
often than they did in the past to take new jobs. Also the elderly live
longer today than they once did, and often require much more
sophisticated and expensive forms of medical care. Furthermore, once the
government began to provide more services, people began to look to the
government for more support, forming special interest groups to push
their demands.
Some people and groups in the United States favor further expansion of government programs, while others favor sharp reductions in the current size and scope of government. Reliance on a market system implies a limited role for government and identifies fairly specific kinds of things for the government to do in the economy. Private households and businesses are expected to make most economic decisions. It is also true that if taxes and other government revenues take too large a share of personal income, incentives to work, save, and invest are diminished, which hurts the overall performance of the economy. But these general principles do not establish precise guidelines on how large or small a role the government should play in a market economy. Judging the effectiveness of any current or proposed government program requires a careful analysis of the additional benefits and costs of the program. And ultimately, of course, the size of government is something that U.S. citizens decide through democratic elections.
IX IMPACT OF THE WORLD ECONOMY Today, virtually every country in the world is affected by what happens in other countries. Some of these effects are a result of political events, such as the overthrow of one government in favor of another. But a great deal of the interdependence among the nations is economic in nature, based on the production and trading of goods and services.
One of the most rapidly growing and changing sectors of the U.S. economy involves trade with other nations. In recent decades, the level of goods and services imported from other countries by U.S. consumers, businesses, and government agencies has increased dramatically. But so, too, has the level of U.S. goods and services sold as exports to consumers, businesses, and government agencies in other nations. This international trade and the policies that encourage or restrict the growth of imports and exports have wide-ranging effects on the U.S. economy.
As the nation with the world’s largest economy, the United States plays a
key role on the international political and economic stages. The United
States is also the largest trading nation in the world, exporting and
importing more goods and services than any other country.. Some people
worry that extensive levels of international trade may have hurt the U.S.
economy, and U.S. workers in particular. But while some firms and workers
have been hurt by international competition, in general economists view
international trade like any other kind of voluntary trade: Both parties
can gain, and usually do. International trade increases the total level
of production and consumption in the world, lowers the costs of
production and prices that consumers pay, and increases standards of
living. How does that happen?
All over the world, people specialize in producing particular goods and services, then trade with others to get all of the other goods and services they can afford to buy and consume. It is far more efficient for some people to be lawyers and other people doctors, butchers, bakers, and teachers than it is for each person to try to make or do all of the things he or she consumes.
In earlier centuries, the majority of trade took place between individuals living in the same town or city. Later, as transportation and communications networks improved, individuals began to trade more frequently with people in other places. The industrial revolution that began in the 18th century greatly increased the volume of goods that could be shipped to other cities and regions, and eventually to other nations. As people became more prosperous, they also traveled more to other countries and began to demand the new products they encountered during their travels.
The basic motivation and benefits of international trade are actually no
different from those that lead to trade within a nation. But
international trade differs from trade within a nation in two major ways.
First, international trade involves at least two national currencies,
which must usually be exchanged before goods and services can be imported
or exported. Second, nations sometimes impose barriers on international
trade that they do not impose on trade that occurs entirely inside their
own country.
A U.S. Imports and Exports
U.S. exports are goods and services made in the United States that are
sold to people or businesses in other countries. Goods and services from
other countries that U.S. citizens or firms purchase are imports for the
United States. Like almost all of the other nations of the world, the
United States has seen a rapid increase in both its imports and exports
over the last several decades. In 1959 the combined value of U.S. imports
and exports amounted to less than 9 percent of the country’s gross
domestic product (GDP); by 1997 that figure had risen to 25 percent.
Clearly, the international trade sector has grown much more rapidly than
the overall economy.
Most of this trade occurs between industrialized, developed nations and
involves similar kinds of products as both imports and exports. While it
is true that the U.S. imports some things that are only found or grown in
other parts of the world, most trade involves products that could be made
in the United States or any other industrialized market economies. In
fact, some products that are now imported, such as clothing and textiles,
were once manufactured extensively in the United States. However,
economists note that just because things were or could be made in a
country does not mean that they should be made there.
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