Ideologies drive economic views of policy-makers
Is government necessary? If so, what functions should it perform?
The discussion at the James V. Brown Library centered around those questions Wednesday evening during the talk given by Mehrdad Madresehee, Lycoming College professor of economics, on the role of government in the economy.
The functions the federal government should perform varies between conservative and liberal views. Conservatives believe in a limited government role, but that it should still be involved in some ways, Madresehee said, such as establishing laws, providing public goods and stepping in with “spill-over” effects.
The overarching ideology is the perception and placement of failure: while conservatives view government skeptically, liberals see the market’s limitations to solve social and economic problems, he said.
Regarding the government providing public goods – which are goods that can be consumed by someone without diminishing the amount others can consume – taxes are necessary as it forces everyone to contribute to the common good. That addresses the “free-rider problem” of everyone benefiting from a public good that only a few may contribute to otherwise, Madresehee said.
Liberals tend to believe in the redistribution of income and wealth, and fighting poverty. Regarding income and wealth inequality, “the market is ruthless,” Madresehee said.
“Who gets what is not determined by the number of hours worked, but by supply and demand,” he said.
While 1 percent of the American population is very rich, the majority is left lacking, he said.
The nation’s income tax is rather progressive, he said, as those who make more pay more. In comparison, Pennsylvania’s income tax is flat, as the rich and poor pay in the same, he said.
Madresehee said this country is not over-taxed compared to other countries.
“We’re like the spoiled kid who wants everything and doesn’t want to work,” he said.
Taxes are necessary to solve the budget and address the debt, he said. “We like tax rebates, free school lunches,” but when it comes time to pay for it, politicians back down from tax increases because they want re-elected, Madresehee said.
Wealth distribution – or distribution of accumulated money – is worse in the U.S. than income distribution, as measured by annual income, Madresehee said. While some think redistribution would lift the whole society up, others contend the poor would spend this money whereas the rich would invest it, creating a trickle-down effect with more jobs, he said.
Should the government be involved in fighting poverty? It has been since the Great Depression, Madresehee said. “But some say this safety net has turned into a hammock,” he said. Former President Ronald Reagan encouraged churches to get more involved, but that leaves a gap, as many in the community don’t go to church, Madresehee said.
As far as the government “fine-tuning” the economy with fiscal and monetary policies, liberals may think governmental action is necessary to prevent severe recessions, depressions or inflations, he said. Historically, government had a more hands-off approach, but multi-year depressions with 25 percent unemployment rates would hit, so the thinking began to change.
“Both parties believe in government fine-tuning the economy,” Madresehee said, “but how much involvement is enough?”