CHAPTER 22 Contemporary Issues
Test Yourself
1.
In what ways is the United States
still an economic leader in the world? In what ways has it fallen behind other
nations?
The
United States still leads the world in productivity but is slipping when
compared to the growth rates in productivity with other nations. The United
States still has some of most innovative and entrepreneurial people in the world
and it still spends more on R&D than most other nations. However, other
countries like China are closing the gap and China could outspend the United
States on R&D in the next decade.
The United States has fallen behind other countries in terms of
education, managing government’s fiscal affairs, in providing cost-effective
healthcare, and in terms of an equitable distribution of income and wealth.
3.
What factors have helped to spur the exceptional economic growth in America
since the Industrial Revolution?
Investments in our labor force through
investments in health, education and training programs, investments in private
and public capital accumulation, investment in technology through R&D
expenditures, and the innovation and entrepreneurialism of the United States
accounts for its exceptional economic growth in the past. It is also noteworthy
that the decades in which the United States did best were the same decades in
which income and wealth inequality were least profound. These are the same
ingredients for future growth.
4.
What is the cost disease of the personal
services and how does it affect expenditures on education and health care in the
United States (and other wealthy nations)?
The cost disease of the personal services is the tendency of
the costs and the prices of these services to rise persistently faster than
those of the average output in the economy. This means that for average workers
the cost of living is rising faster than their incomes. This can cause education
(especially higher education) and health care to be unaffordable for many
people. As a result, fewer people get the education and health care necessary
for the nation to grow and prosper.
Discussion Questions
3.
Discuss how education funding in the United States
differs from many other developed nations and explain how this affects U.S.
students’ scores on international achievement tests.
Education is predominately funded in the United
States through local property taxes. Therefore, poor neighborhoods are at a
disadvantage in educational opportunities reducing upward mobility. This has a
tendency to trap the poor in a vicious cycle of poverty. For many other advanced
countries, education is federally funded and close to if not tuition-free at all
levels. A more egalitarian approach to funding primary and secondary education
appears to have succeeded in reducing inequality in these wealthy nations.
4.
In
recent decades, how have poverty and inequality changed in the United States?
Discuss how these trends might affect future economic growth.
Poverty
and inequality have worsened rather significantly in recent decades—particularly
since 1980. Greater income and wealth inequality can create a vicious
cycle—where stagnant or lower incomes for the majority result in fewer tax
revenues collected by government. Government then cuts funding for education and
other ingredients for economic growth. As a result the economy grows even more
slowly and perhaps income becomes even more unequally distributed. This creates
still lower incomes and tax collections that result in still more cuts in
critical government programs necessary for growth and prosperity and the
downward spiral continues.