[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

1955
Interest 7%
Transportation 2%
Education 1%
Other 13.60%
1970
Interest 7%
Transportation 4%
Education 4%
Other 14%
1985
Interest 14%
Transportation 3%
Education 3%
Other 9%
2000
Interest 12%
Transportation 3%
Education 4%
Other 8%
Defense
62%
Social
Security and
Welfare
14%
Social
Security
and Welfare
23%
Defense
42%
Defense
27%
Social
Security and
Welfare
33%
Defense
16%
Social
Security and
Welfare
37%
Health and
Medicare
0.40%
Health and
Medicare
6%
Health and
Medicare
11%
Health and
Medicare
20%
Figure 17.1
THE CHANGING PATTERN OF
FEDERAL EXPENDITURES
Since 1955 there has been a steady increase in the share of federal funds allocated to
Social Security, welfare, health, and Medicare. During the same period, the share
allocated to defense has dropped dramatically.
SOURCE: U.S. Census Bureau, Statistical Abstract of the United States (1997), Table 518, and (2000),
Table 533.
government has become more involved in school reform, but most spending on education
in the United States is undertaken by state and local governments; it accounts
for about 4 percent of federal spending.
But as already noted, the impact of the federal government cannot be gauged
just by taxes and expenditures. First, it provides the legal system that enables the
private sector to function. For example, the government creates and enforces
contract laws, which structure agreements between two parties. The government
also makes and enforces bankruptcy laws, which determine whose bills must be
paid when an individual or corporation cannot meet debt obligations and files
for bankruptcy.
Second, the government is responsible for maintaining the macroeconomic stability
of the economy—preventing or at least minimizing recessions and depressions
on the one hand, and runaway inflation on the other. Third, the government creates
and enforces regulations designed to promote competition, preserve the environment,
and protect consumers and workers. While there is considerable debate about
the costs of these regulations, and about whether the benefits exceed those costs, few
doubt that the regulations have succeeded in creating cleaner air, less-polluted
waterways, and even safer cars and workplaces.
Although everyone values these benefits of government, many have worried that
the taxes levied to finance government activities are a drag on the economy and
interfere with its efficiency.
376 ∂ CHAPTER 17 THE PUBLIC SECTOR