1. Property rights and regulation
Unit 4: Economics of the Public Sector
Property rights and regulation

2. The Government and the Market Economy
Consider this quote from the economist Charles Wheelan:
“Good government makes a market economy possible. Period. And bad government, or no government, dashes capitalism against the rocks, which is one reason that billions of people live in dire poverty around the globe.”

3. The Constitution says…
That Congress has the following economic powers:
To lay and collect taxes
To provide for the general welfare
To borrow money
To regulate interstate and foreign commerce
To establish uniform bankruptcy laws
To coin money and regulate its value
To fix the standard of weights and measures
To protect the writings and discoveries of authors and inventors

4. The Government and Property Rights
Because incentives matter, the ownership of property creates a number of incentives to promote economic progress
WHY???

5. Government Protects Private Property
Land
Personal Possessions
Other physical assets
And…Intellectual Property!
Protecting property rights essential to success of free market system…why?
Because INCENTIVES MATTER
Private Ownership encourages people to take care of their property – value of house
Encourages people to make most productive use of their property –maximize crop yield, e.g.
Encourages people to develop their property in ways that benefit others – if others benefit from use, owner makes more money.

6. Property Owner Rights
Owners of private property have the following rights:
The right to exclusive use of their property
The right to legal protection against trespassers or abusers of their property
The right to sell or trade their property

7. One exception to the rights of owners of private property…
Eminent domain
Is the power to force the transfer of property from a private owner to the government for a public purpose
Partner Discussion:
Identify 2 scenarios that eminent domain might be used by the government

8. Partner Discussion
How does the government protect the people’s property rights? List at least 2 ways the government protects private property.

9. The Government and Property Rights
The government protects the rights of property owners mainly:
Through the court system
By issuing patents, copyrights, and trademarks

10. The Government and Regulation
Through regulation, the government seeks to protect the interests of all participants in the economy
It does this by:
Maintaining competition
Protecting consumers, savers, and investors
Protecting workers

11. Maintaining Competition
Competition is essential to a free market economy
Efficient use of resources
Innovation
Ensure lowest possible prices
When markets fail to be competitive, the government steps in to ensure or encourage competition

12. Maintaining Competition
Regulatory agencies
Justice Department
Federal Trade Commission
Investigate and enforce laws protecting against:
Price fixing
Bid rigging
Market division
Monopolies and trusts

13. Protecting Consumers, Savers, and Investors
To ensure that consumers, savers, and investors:
Possess all necessary information to make wise and safe choices
Are protected against unscrupulous/dishonest businesses and individuals
Feel confident about their economic choices

14. Protecting Consumers, Savers, and Investors
Regulatory Agencies
Food and Drug Administration (FDA)
“there was never the least attention paid to what was cut up for sausage…there would be meat that had tumbled out on the floor, the dirt and sawdust, where the workers had tramped and spit…meat stored in great piles in rooms; and the water from leaky roofs would drip over it, and thousands of rats would race about on it…these rats were nuisances, and the packers would put poisoned bread out for them; they would die and then the rats, bread and meat would go into the hoppers together” Upton Sinclair
Consumer Product Safety Commission
Savers and Investors
Federal Deposit Insurance Corporation (FDIC)
Security and Exchange Commission (SEC)

15. Protecting Workers To ensure that workers: Get the wages due to them
Work in workplaces free from discrimination
Are provided unemployment insurance
Health and well-being is protected in the workplace

16. Protecting Workers Regulatory Agencies Department of Labor
Occupational Safety and Health Administration (OSHA)

17. Partner Discussion
How might government regulation be bad or negatively interfere with the marketplace?
Identify two possible instances of the negative side of government regulation

18. The Downside to Government Regulation
Overregulation
Compliance with some regulation is expensive
Might discourage economic activity
E.g. OSHA standard on ladder safety:
“The general slope of grain in flat steps of minimum dimension shall not be steeper than 1 in 12, except that for ladders under 10 feet in length the slope shall not be steeper than 1 in 10…local deviations of grain associated with otherwise permissible irregularities are permitted”
Balancing costs and benefits
Debate over: At what point is regulation unnecessary or needs to end?
Example: Clean Water Act – how clean does water have to be?

19. The Downside to Government Regulation
Regulatory capture
Best regulators are people who worked in the industry being regulated
Best people to ensure an industry is in line with government regulations is the people who worked in the regulatory agency
This creates a “revolving door”
Regulatory capture = regulatory agencies are dominated by the industries they regulate
Captured agencies act in the best interest of the industry rather than in the public interest