Guideposts

This week we have learned about government spending and taxation in our special readings, along with the 8 guideposts of economic thinking. I will touch on 4 of these guideposts and how they apply to spending and taxes. The first guidepost of economic thinking states that the use of scarce resources is costly, so trade-offs must be made by decision makers. The perfect example of how this applies is that since 1960, spending on defense has fallen dramatically, and expenditures on things such as healthcare have soared. Between 2000 and 2010, the defense spending has increased from 16% to 20%, but healthcare spending is through the roof because the decision makers obviously decided that the healthcare industry economically made more sense for citizens and tax payers. This applies to the first guidepost simply because of the fact that healthcare was a costly resource and a tradeoff was made with the defense industry. Guidepost six warns to beware of the secondary effects. The perfect example of how this applies to government spending is in the text book. The government wanted to reduce the amount of gasoline that American’s consumed and forced automobile companies to design their cars with better fuel efficiency. In order to do this, the companies had to change the weight and size of the cars which ultimately led to a statistic of approximately 2500 vehicle deaths per year. There was obviously no intention by the federal government to have a statistic like this come up, but the tradeoff of saving money on gasoline by having more efficient cars was caused the secondary effect that they could not have predicted. This prediction could have and in all reality should have occurred with the eighth guidepost where testing the theory would have been important. Maybe before mandating the vehicle companies to make more efficient cars they could have predicted the unsafe risks of lighter vehicles that did not handle as well as heavier gasoline powered vehicles.