To make a choice, it is necessary to evaluate the initial data, determine the possibilities and determine who is more interested in the public (state) interest - an official or a private trader? How disinterested are both? Is the state always able to achieve what it wants? Can voluntary exchange (the free market) be the only incentive that encourages people to work together? Who will be interested in the production and supply of goods if people can receive these goods without paying for them (free rider problem in transport)?
The prominent American economist John Galbraith answers these and similar questions in the following way: “The reckless commitment to the ideology of free enterprise and the conviction that the state should not play in economic life has no role - they could become disastrous even for us if we listened to this "(Conversation with F. Burlatsky. Literary newspaper. 1990, February).
In a mixed economy government fully integrated into the circulation of material and monetary resources that form economic mechanism. Everything is real functioning economic systems are "mixed" systems; everywhere government and the market system are divided among themselves function finding answers to the central questions of economics:
What should be produced and how much? To what extent or what part of the available resources should be borrowed or used in the production process?
How should these products be produced? How should production be organized? Which firms should produce and which technology should be used?
Who should receive this product, how should it be distributed among individual consumers?
Different economic systems of the world and individual states differ from each other in the ratio of roles governments and market in economic management. The differences relate to the set of methods and forms of regulation, the limits of one form or another, as well as the direction of economic regulation. However, in all cases economic functions of government play a very important role in the development of the economy.
quantify economic role governments difficult to manage the economy. This role is carried out on such a large scale that it is in fact impossible to compile an exhaustive list of its economic functions. With a certain certainty, it is possible to establish the share of the national product produced under the auspices of the government, the total volume of products purchased by the state, the share and absolute size of public investment. But how do you quantify government regulations designed to protect the environment, protect the health and safety of workers, protect consumers from hazardous products, ensure equal access to job vacancies, and control pricing practices in certain industries, etc.?
Some economic tasks governments aim to support and facilitate functioning market system. These include:
providing a legal framework and a public atmosphere conducive to effective functioning market economy;
protection of competition;
redistribution of income and wealth;
adjusting the distribution of resources in order to change the structure of the national product;
stabilization of the economy, control over the level of employment and inflation, stimulation economic growth. The tasks of providing a legal basis for a market economy are resolved by introducing rules of conduct that should guide producers in their relations with consumers. Legislative acts governments relate to the definition of property rights, relations between enterprises, the ban on the sale of counterfeit products and medicines, the establishment of quality standards, product labeling, responsibility for compliance with the terms of contracts, etc. The measures of the state to protect competition have already been mentioned.
Indeed, the growth of monopolies dramatically changes the market situation. A situation is created in which the number of sellers becomes limited and, because of this, each of them is able to influence the total supply, and therefore the price of the product being sold. Monopoly by its very nature breeds misallocation economic resources. However, there is a limiter in the way of the omnipotence of monopolies. The first of these is the market mechanism itself. If there is only one seller of product A, then the consumer will have no choice. Then he will look for alternatives, i.e. substitute for this product. As the demand for these substitutes increases, the supply will also increase. As a result, this single monopolist will have indirect competitors.
The second limiter to the dominance of monopolies is the activity governments for the protection of competition. In industries where technology and economic conditions preclude the existence of competitive markets governments regulate prices and set standards for services rendered. Transport, communications, generation and distribution of electricity and other public utilities are subject to varying degrees in most states. government regulation, in many countries are the property of the state.
One of economic functions of government associated with the redistribution of income and resources. In the distribution of income, the market system can generate large inequalities. In the short period of transition to market relations in the CIS countries, millionaires-billionaires quickly appeared, and tens of millions of people found themselves below the poverty line. Unlike civilized states, where the market system brings large and super-large incomes to persons whose work is highly paid due to natural abilities, well-acquired education and skill, or to those who own large capital earned by the hard work of many generations, our newly appeared millionaires in most of them have neither intelligence nor positive experience of entrepreneurship and skill. Most of them took advantage of the chaos and anarchy against which the collapse of the Soviet civilization took place.
In stable states governments develop and implement social security programs, establish minimum wages, unemployment benefits, fix prices in order to increase the incomes of certain groups of the population, establish differentiated tax rates on personal incomes of the population. Thus, governments regulate the distribution of income through direct intervention in functioning market and indirectly through the system of taxes and other payments. Through the mechanism of taxation and public spending on social security, an increasing share of national income is transferred from the relatively rich to the relatively poor.
Fourth function associated with adjusting the distribution of resources in order to change the structure of the national product. The assertion that one of the virtues of a competitive market system is to ensure an efficient allocation of resources for the production of goods and services is true under one important assumption: all the benefits and costs associated with the production and consumption of each product are fully reflected in the market supply and demand curves. Meanwhile, in the production and consumption of goods and services, side effects may occur, and the benefits or costs of such effects can be transferred to third parties that are not directly related to either the production or consumption of this product or service. Most often, such a third party is the population itself. When a chemical enterprise or a metallurgical plant pollutes water bodies and the atmosphere with their waste, part of the costs is transferred to the population, to whom they are not compensated in any way. In order to prevent or reduce harmful effects on the environment governments pass legislation obliging potential polluters to bear the cost of neutralizing industrial waste. The government may impose a special tax that is equal to or very close to the cost of spillage per unit of output. Adjustment can be made in the direction of increasing demand or supply. For example, in the United States, the food stamp program is designed to improve the diet of low-income families. The point of this program is that better nutrition will help poor children do better in schools and low-paid adults do their jobs better. More productive work of participants economic process brings benefits to the whole society. The opposite approach is implemented on the side of the market supply, when government subsidizes producers (gratuitous loans, subsidies for education, health care, etc.).
Action governments to ensure the rational distribution and use of resources is implemented through tax policy. Taxation of enterprises and the population depending on tax rates may in some cases turn off part of their income and reduce their investment and consumer spending, and in others increase them. Thus, taxes release resources from the private sector or create conditions for their inflow. Governments deliberately redistribute resources in order to effect changes in the structure of a country's national product.
Function governments to stabilize the economy is associated with the help of the private sector in ensuring full employment of resources and a stable price level. The level of production directly depends on the total volume of expenditures. A high level of total spending means that it is beneficial for many industries to increase output, a low level will not ensure full employment of resources and the population. Anyone government it is necessary, on the one hand, to increase their own spending on public goods and services, and on the other hand, to reduce taxes in order to stimulate private sector spending. Another situation may arise if society tries to spend more than the productive capacity of the economy allows. When total spending exceeds the value of the product at full employment, the excess spending will cause the price level to rise. Excessive total spending is always inflationary.

1. Economic functions of the government

The economic functions of the government are diverse and boil down to the following:

1. Ensuring the legal framework and social atmosphere conducive to the efficient functioning of the market system.

2. Protection of competition.

3. Redistribution of income and wealth.

4. Correcting the distribution of resources in order to change the structure of the national product.

5. Stabilization of the economy, that is, control over the level of employment and inflation generated by fluctuations in the economic environment, as well as stimulating economic growth.

When the political situation changes, there are changes in economic policy.

Economic management is a purposeful influence on the process of social labor. It is called upon to organize, coordinate, regulate and control the economic activities of individual workers and industrial enterprises and firms in order to achieve the intended goals.

In the process of managing economic processes at the level of the whole society, information is collected and analyzed about the progress and prospects of production activities, a decision, a decree, laws are made that are binding.

The government takes on the task of providing a legal framework, which is a prerequisite for the effective functioning of a market economy. The necessary legal framework also includes measures such as granting legal status to private entrepreneurs, appropriate rights and guarantees of entrepreneurship. The government also establishes legitimate "rules of the game" that govern the relationship between businesses, resource providers and consumers. In accordance with the adopted laws, the government is able to act as an arbitrator in the field of economic relations, identify cases of illegal economic practices, and use power to impose appropriate penalties.

The state also provides services to society in the form of the content of state structures that ensure the maintenance of public order: the court, the prosecutor's office, the police, etc., and also introduces standards for measuring weight, product quality, maintaining money circulation and the rules for the functioning of the market for goods, capital and labor .

The state defends competition, that is, it creates conditions for competition between entrepreneurs for more favorable conditions for the realization of the results of their production, on the one hand, and competition between producers and buyers for the wallets of consumers of goods and services. In this case, competition itself is seen as a form of creativity and freedom, when all market participants submit to the dictates of the buyer or the requirements of the consumer. In competition, the question of supply and demand for goods and services is decided by the market price. This means that the individualization of the producer and resource providers can achieve the desired results only if they adapt to the desires and needs of consumers, buyers.

The anti-competitive force is monopoly. When a monopoly arises, the situation changes dramatically, since the interests of producers come to the fore, who can set prices to the detriment of the whole society.

In Western countries, governments establish control over monopolies, and they do this in two ways.

First, the government, with the help of "natural monopolies", has a direct impact on the pricing of many types of goods, services, raw materials, etc. In these areas, the government forms commissions to regulate prices. In addition, the government sets standards for the provision of services.

Secondly, an important counteracting factor to the dictate of monopolies is the system of antimonopoly and antitrust laws in order to protect the freedom of enterprise as an effective regulator of the behavior of small, medium and large business representatives.

2. Redistribution of income

In the developed capitalist countries, there is a deep differentiation of the population in terms of the amount of income received, which is the reason for a certain social inequality in the relationships between different classes in society.

To reduce these tensions, the government is taking on the task of reducing income inequality. This task finds its solution in a number of political and economic measures taken by the governments of countries with market economies. Among these measures, one should point to transfer payments that provide payments to the needy, the needy, the disabled, and the unemployed. All of these programs transfer government revenues to those economic structures that cannot exist without government support, such as agriculture.

An important area of ​​income redistribution is government intervention in the formation of market prices. This is achieved through guaranteed prices for farmers' products, as well as legislation on minimum wages.

The state actively stimulates the demand and supply of goods and services, the consumption of which benefits society. There are certain types of goods and services, called government or public goods, that the market system is reluctant to produce due to being particularly expensive or lacking profit.

A classic example of a public good provided to society by the state are environmental organizations, navigation systems - the construction of sea beacons that warn ships from shipwrecks. Other types of public goods are national defense, flood control, road construction, and the like. Therefore, in order for society to enjoy these goods and services, they must be financed by the public sector through taxes replenishing the state treasury.

These types of services generate uncompensated costs, that is, the costs are greater than the revenue received from the sale of these services. In this case, we are talking about the so-called overflow costs. The most well-known overflow costs are associated with environmental pollution (costs for water and air purification facilities, maintenance of inspections, etc. are covered by the state budget).

The state is implementing a set of measures aimed at stabilizing the development of production through a policy of full employment of resources (capital, raw materials, labor and maintaining the stabilization of the price level).

In order for government intervention in politics to be effective, the public sector of the economy receives appropriate development in society as the most important economic foundation for social development.

3. The public sector and its role in the country's economy

Over the past few decades, the regulatory role of the state in various areas of economic activity has increased significantly, such as: production, employment, labor productivity, price levels, resource allocation, tax collection and government spending. There is a difference between the activities of the private and public sectors in the economy, but there are also common features that complement each other in solving the nationwide, social, political, and economic problems of the country.

The impact of the state on the economy is most tangible through taxation and government spending. However, there are many other ways of state intervention in the economic life of the country, as mentioned earlier.

Among the most important reasons that give rise to the need for the growth of the public sector in the economy are such as the growth of socialization of production, the need for national defense, the growth of cities and population, environmental problems, egalitarianism (overcoming poverty and reducing income inequality, and others).

The scale of the economic role of the state is evidenced by government purchases of goods and services and government transfer payments. In the US, transfer payments account for almost 30% of the national product. Their share in other countries is even higher, for example, in Switzerland they make up 51%, in France - 46%, in the UK - 45%.

Government spending on goods and services in the United States has increased more than 100 times over the past 60 years (from $9 billion in 1929 to $1 trillion at the end of the 80s). In recent decades, government purchases have fluctuated at the level of 20-30% of the national product. About half of this amount of expenditures are transfer payments, that is, payments to certain segments of the population in the form of unemployment benefits, social insurance payments and benefits to war veterans, etc. During the period from 1929 to 1988 they increased from 3.7 billion dollars to 586 billion dollars, that is, almost 150 times.

There are important differences between government purchases and transfer payments. Through government purchases (purchases of weapons, building institutions, paying for the services of judges, firefighters and teachers), resources are redistributed from private to public consumption of goods. And through transfer payments, the government changes the structure of production of goods in the private sector (acquiring goods and services of individuals and certain groups, with the help of the state, purchase goods paid for by society, influencing the production structure and activity through an increase in demand for relevant products). But in assessing the role of purchases and transfers in the influence of the state on the economy, the primary role belongs to public purchases.

State intervention in the economy itself is carried out in three directions - this is the intervention of the federal government, governments in the states and local authorities. Each of the indicated branches of the public sector has incomes, corresponding monetary sources and expenditures of its budgets.

4. Public sector finances and their sources and expenditures

Federal budget revenues are formed from several items: personal income taxes - 46%, payroll taxes - 35%, corporate income taxes -10%, other taxes - 10%, which include excise duties, customs duties, taxes on gifts and so on.

The US federal personal income tax rate in the early 1990s was as follows.

Taxes levied on the payroll (on pension insurance premiums, free medical care) are paid by employers and employees. Each employer and each employee pays a 7.51% tax on the first $48,000 of annual income (wages) at a corporate tax rate of 34%.

Excise taxes are levied on a limited number of goods: alcoholic beverages, tobacco, gasoline. The specified rates of income tax and income tax introduced in the US in 1989.

Federal budget expenditures are characterized by a wide variety and 80% are three values ​​of the budget spending rate: 1. Assistance to the elderly, unemployed, disabled, low-income citizens of the country, which is 40%. 2. National defense -28%. 3. Interest on public debt - 14%.

In 1987, $70 billion, or 7% of the budget, was spent on education and health care.

State finances are characterized by their own characteristics. First, revenues are generated mainly from sales taxes (taxes on turnover, excise duties), which amount to about 50%. Secondly, personal taxes (income tax) is 31%, licenses, visas - 9%.

The expenditure part of the state budget covers the costs of education (24%), social insurance (12%), public safety (7%). Each state, in accordance with its own laws, establishes expenditure rates for the listed needs, which gives rise to significant fluctuations in tax revenues and expenditures.

The revenues of local governments (districts, municipalities, districts) mainly come from property taxes (74% in 1987), sales taxes and excises (11%). Currently, the so-called "non-tax revenues" in the form of lotteries and subsidies from the federal and state governments have become an item of income for local governments.

The main expenditure items of local budgets are financing of education - 43%, health care and social protection - 12%, the need for the preservation and protection of the environment and housing costs - 11%.

The finances of the public sector are the most complete reflection of the economic activity of the state, as the public sector is becoming more and more a subject of economic activity. Through the state of finances of state bodies, one can judge the level of production activity in this sector of the economy. Through the distribution of financial resources, the government reveals the content and nature of distribution relations in a society with a market economy. The fact is that the system of distribution of financial resources in the public sector is carried out in accordance with the current legislation, which in itself is an example of the requirements of the law. On the other hand, the development of the public sector leads to more and more of its influence on the general trends in the development of the country's economy, which gives grounds to assert the positive results of the impact of the public sector as a certain standard in relation to the field of economic activity.

5. Types of taxes, their distribution and public deficit

All taxes are divided into progressive, proportional and regressive.

It depends on those objects that are subject to taxation - income, products, buildings, land, etc.

1. A tax is progressive if its average rate rises as income increases. In this case, his average rate rises as his income rises.

2. Regressive tax - such a tax, the average rate of which decreases as income increases. Income growth is subject to a lower tax rate in this case. In this case, it is possible to receive a large absolute amount if the growth rate of income is significant. Or maybe it won't.



The role and functions of the state in a market economy

In the complex interweaving of biological and social, material and spiritual aspects of human life, economic theory analyzes the decisive area of ​​human life, namely the sphere of production and distribution of life's goods in conditions of limited resources, without which all other diverse forms of realization of personal and public interests would be impossible. Economic theory in the study of human society proceeds from the most important premise that a person is both a producer and a consumer of economic goods. A person not only creates, but also sets in motion and determines the ways of using equipment and technology, which, in turn, impose new requirements on the physical and intellectual parameters of a person. Economic theory singles out in a person mainly what meets the task of explaining the economic behavior of people in various economic systems with limited resources and limitless human needs. A. Smith, the founder of the classical school in economics, formulated the concept of “homo economics”, “economic man”. A. Smith believed that the main incentive for human economic activity is private interest. A person can realize his interest only by interchanging with other people the results of private economic activity, in other words, in the process of division of labor. By pursuing private interests, people objectively satisfy each other's needs. The prosperity of society, therefore, is possible only on the paths of individual well-being, and the private interest leading to the achievement of this well-being is a rather powerful incentive. Of course, the image of “economic man”, or “homo economicus” suffers from a certain one-sidedness, since man is not only “economic man”. Nevertheless, the economic activity of people is an essential characteristic of the realization of the human personality, a condition, basis and prerequisite for all other aspects of life, both for an individual and for society as a whole.

The subject of economic theory is the analysis of the market economy. The most precise definition of the subject of economic theory was given by the English economist L. Robbins: “Economics is a science that studies human behavior from the point of view of the relationship between its goals and limited means that allow alternative use.” In addition to pointing out the problems of rarity and choice, it is important to once again recall the rational behavior of a person in the process of economic activity. Minimizing costs and maximizing benefits is the essence of rational economic behavior. The “benefit” / “cost” ratio is nothing but an indicator of efficiency. Therefore, the problem of efficiency becomes the center of the study of the market economy: how to achieve the maximum return on production costs in conditions of limited resources.

All really functioning economic systems are “mixed” systems; everywhere government and the market system share the function of answering 5 fundamental questions. Nevertheless, different economic systems of the world differ sharply from each other in the ratio of the roles of the government and the market in managing the economy. At the same time, the economic functions of the government - federal, state, local authorities - play a very significant role in it. It is not easy to quantify the economic role of government. A very rough indicator of the share of the market and government in the economy is the fact that at present about 4/5 of the national product is provided by the market system, and the rest is produced under the auspices of the government. But in addition to financing production, the government also implements a number of social insurance and social security programs, aiming to redistribute income in the private sector of the economy. Statistics show that taxes and total government spending - for the purchase of goods and services and for social programs - account for approximately 1/3 of the national product. Finally, a host of hard-to-quantify regulations designed to protect the environment, protect the health and safety of workers, protect the consumer from hazardous products, ensure equal access to job vacancies, and control pricing practices in certain industries involve the government in all areas of the economy. activities. The economic role of the government is undoubtedly great and comprehensive. The economic functions of government are many and varied. In fact, the economic role of the government is carried out on such a large scale that it is in fact impossible to draw up an exhaustive list of its economic functions. First, some of the government's economic tasks are designed to support and facilitate the functioning of the market system. In this area, we note the following two most important activities of the government:

1. Ensuring the legal framework and social atmosphere conducive to the efficient functioning of the market system.

2. Protection and support of competition.

By fulfilling the second group of tasks, the government strengthens and modifies the functioning of the market system. The following three functions of government are important here: 3. Redistribution of income and wealth.

4. Correcting the distribution of resources in order to change the structure of national production.

5. Stabilization of the economy, that is, control over the level of employment and inflation generated by fluctuations in the economic environment, as well as stimulating economic growth.

Although this list of five functions of government usually serves as a basis for analyzing its economic role, we will see later that most government activities and policies affect all of the economic processes listed here in one way or another. For example, a pro-poor income redistribution program affects the distribution of resources because the poor buy goods and services that are somewhat different from the goods and services bought by the richer segments of society. In turn, the reduction of government military spending in order to ease inflationary pressures also leads to a reallocation of resources from the public sector to the private sector. The state is entrusted with a serious task - the task of the rights of producers and consumers operating in the market. “An industrial society based on market relations and offering significant freedom of choice is unthinkable without a legal system, without the rule of law,” notes the prominent English sociologist K. Popper (Popper K. Open Society and Its Enemies, M. 1992) . For the normal implementation of economic activity, subjects must be protected by law. First of all, the right of ownership must be secured. An owner who is not sure of the inviolability of his property will be afraid of its alienation and restriction of his right to it and will not be able to use his creative and material potential to the fullest extent. Therefore, it is necessary to have legislation that ensures the right of ownership. An important role in legal support is played by state opposition to the unlimited power of monopolies. In economically developed countries, antitrust laws have been developed to limit the element of unhealthy and unfair competition. Consumer protection legislation is of great importance. Serious sanctions are taken against the sale of low-quality goods, false information about the activities of firms. Laws have been developed regarding the protection of intellectual property, the activities of the banking sector and other areas of the economy. Finally, criminal legislation against theft, violence, murder creates a more stable situation in the country and thus improves the functioning of the market. The government takes on the task of providing the legal framework and some essential services that are a prerequisite for the efficient functioning of a market economy. The necessary legal framework includes measures such as giving legal status to private enterprises, defining private property rights, and enforcing contracts. The government also establishes legitimate "rules of the game" that govern the relationship between businesses, resource providers and consumers. On the basis of legislation, the government is able to act as an arbitrator in the field of economic relations, identify cases of dishonest practices of economic agents and use the power to impose appropriate penalties. The main services provided by the government include the use of police forces to maintain public order, the introduction of standards for measuring the weight and quality of products, the creation of a monetary system that facilitates the exchange of goods and services. It is understood that this kind of government activity improves the allocation of resources. Providing the market with a medium of exchange, guaranteeing the quality of products, defining property rights, and being responsible for compliance with the terms of contracts - all these measures lead to an increase in the volume of trade. They expand markets and allow ever greater specialization in the use of both material and human resources. And this specialization means a more efficient allocation of resources. However, some believe that the government is over-regulating the relationship between businesses, consumers and workers, thereby suppressing economic incentives and undermining the efficiency of production.

Protecting Competition Competition is the main regulatory mechanism in a capitalist economy. This is the force that subordinates producers and suppliers of resources to the dictates of the buyer or the sovereignty of the consumer. In competition, it is the supply and demand decisions of many sellers and buyers that determine market prices. This means that individual producers and resource providers can only adapt to the desires of buyers, which the market system registers and brings to the attention of sellers. Competing producers, subject to the will of the market system, are expected to profit and strengthen their positions; the fate of those who violate the laws of the market are losses and, ultimately, bankruptcy. In competition, buyers are the master, the market is their agent, and businesses are their servant. The growth of the monopoly changes this situation dramatically. Monopoly is a situation in which the number of sellers becomes so small that each seller is already able to influence the total supply, and therefore the price of the product sold. What is the significance of such a situation? It is simply that when monopoly replaces competition, sellers can influence or manipulate the market to their advantage and to the detriment of society as a whole. By their ability to regulate the total supply, monopolists can artificially limit output and thus obtain higher prices for it, and very often sustainable economic profits. These prices and profits, which are higher than competitive prices, are directly contrary to the interests of consumers. Monopolists are not controlled by the will of society, as it is controlled by competing sellers. Producer sovereignty replaces consumer sovereignty to such an extent that monopoly replaces competition. As a result, resources are distributed in such a way that it serves the interests of monopolistic sellers seeking high profits, and not the goals of satisfying the needs of society as a whole. In short, monopoly breeds an irrational distribution of economic resources. In the United States, the government has tried to control the monopolies primarily in two ways. In the first case, in relation to "natural monopolies", that is, those industries where technological and economic conditions exclude the possibility of the existence of competitive markets, the government formed state commissions to regulate prices and set standards for the services provided. Transport, communications, electricity generation and supply, and other public utilities are subject to varying degrees of such regulation. At the local government level, state ownership of electricity and water utilities is fairly common. However, in the second case, in the vast majority of markets, efficient production can be ensured with a high degree of competition development. Therefore, the federal government has passed a series of antitrust or antitrust laws, beginning with the Sherman Act of 1890, to protect and enhance competition as an effective regulator of business conduct. Even with the provision of a legal framework for capitalist institutions and the protection of competition, there is still a need for the government to perform a number of other economic functions. The market system, at its best, still has inherent errors and shortcomings that force the government to stimulate and modify its functioning.

Income redistribution The market system is an impersonal, impartial mechanism, and the resulting distribution of income can generate more inequality than society would like. The market system brings very large incomes to those whose work is highly paid due to natural abilities and acquired education and skill. In the same way, those who own considerable capital and land, earned by hard work or inherited, receive large incomes from them. But other members of our society are less capable, with only modest education and qualifications. All these people, as a rule, did not accumulate or inherit any material assets. Therefore, their income is very small. In addition, many elderly, handicapped, unmarried women and widows with dependent children earn very little or, like the unemployed, no income at all in the market system. In short, the market system entails a significant inequality in the distribution of money income, and hence in the distribution of the national product among individual households. Despite some progress, poverty amid general abundance continues to be an acute economic and political problem. The government has taken it upon itself to reduce income inequality in our society. This objective has been reflected in a number of policies and programmes. First, transfer payments provide benefits to the needy, assistance to dependents and the disabled, and unemployment benefits to the unemployed. In turn, social security programs provide financial assistance to sick pensioners and the elderly. All of these programs transfer government revenue to households that would otherwise have little or no income. Secondly, the government also changes the distribution of income through market intervention, that is, by modifying the prices set by market forces. Farmer price guarantees and minimum wage legislation are clear examples of how the government fixes prices in order to increase the incomes of certain groups of the population.

Redistribution of resources. Economists are aware of two cases of severe market disruption, that is, situations in which a competitive market system either produced "the wrong" quantities of certain goods and services, or was unable to allocate any resources at all to the production of certain goods and services, the release of which is economically justified. The first case is associated with spillovers of resources, or side effects, the other with state, or social, benefits.

RESOURCE SPILLS OR SIDE EFFECTS

The "correct", or optimal, amount of resources is allocated to the production of each of the many goods and services. Hence, the equilibrium volume of production in a competitive market is also identified with the optimal volume of production. Meanwhile, the conclusion that competitive markets automatically make distribution efficient rests on the implicit assumption that all the benefits and costs associated with the production and consumption of each product are fully reflected, respectively, in the market demand and supply curves. In other words, it is assumed that there are no spillovers, or side effects, associated with the production or consumption of any good or service. Spillover occurs when some of the benefits or costs associated with the production or consumption of a good are "shifted" to third parties, i.e. parties that are not the direct buyers or sellers. Spillovers are also called spillovers because they represent benefits and costs incurred by an individual or group outside the market transaction.

Transfer costs. When the production or consumption of a good generates uncompensated costs for some third party, then spillover costs arise. The most obvious cost of overfilling is associated with environmental pollution. When a chemical plant and a meat-packing factory discharge their industrial effluents into a lake or river, bathers, fishermen, and boaters, not to mention cities seeking sources of normal water supply, all bear the cost of overflow. When an oil refinery pollutes the atmosphere with poisonous smoke, or a paint factory spreads stupefying odors around it, the population bears the cost of overflow, which no one compensates for.

Transformation of overflow costs. The state has a significant role in compensating for externalities. We can say that he is assigned the main role in the field of solving this problem. What measures can the government take to resolve this problem? More precisely, how can the government "transform" spillover costs into domestic production costs"? Two types of corrective measures are usually applied: the first method is the adoption of administrative measures in relation to those who cause negative externalities.

LEGISLATION.

Returning to our examples of air and water pollution, the most direct measure here is simply to pass legislation to prohibit or restrict pollution. Such legislation forces potential polluters to bear the cost of more secure disposal of industrial waste; for example, firms must purchase and install smoke detectors, equipment for the treatment of water contaminated in the production process. Such legislative actions force potential infringers - under the threat of prosecution - to bear all the costs associated with production. For example, in the United States, those responsible for degrading or polluting the environment are charged under the Civil Tort Act, the Infringement of Property Act, the 1970s Clean Air Act, the Clean Water Act, the Noise Control Act, the national environmental policy. The state is entrusted with the control over negative externalities using administrative-command measures, the civil code, penalties, market licenses for waste disposal to a certain level of environmental pollution. The latter way of limiting negative externalities by the state has led to the formation of a market of rights to inflict external costs. State licenses for waste disposal are bought and sold on the market based on supply and demand. Polluters who have bought such licenses, but reduced harmful emissions for the period of their validity, can sell the rest of the license on the market, and if they are completely exempt from waste disposal, they can sell the license to those who do not fit into the permitted emission standards. The economic literature emphasizes the difficulties of introducing highly effective means and methods of monitoring the state of the environment and recycling production waste into economic life. Nevertheless, the formation of a market for pollution rights can contribute, if not to the complete elimination of negative externalities (which is hardly possible), then at least to their minimization.

SPECIAL TAXES.

In addition to setting standards and applying prohibitions, i.e. In addition to direct administrative intervention in order to minimize negative externalities, the state also uses another method - an indirect method of dealing with negative externalities through the tax sphere. This direct measure is based on the fact that taxes are costs. Its essence lies in the fact that producers, who are the main culprits of negative externalities, are taxed, which forces them, in a certain sense of the word, to change their behavior. The government may impose a special tax that is equal to or very close to the cost of spillage per unit of output. By means of such a tax, it attempts to reimpose on the offending firm those side or spillover costs that private industry would otherwise save. As a result, the equilibrium value of the product will be reduced so much that it becomes equal to the optimal value of the product, and thus the excessive allocation of resources to this product will be eliminated.

Overflow benefits. However, spillover can also take the form of a benefit. The production or consumption of certain goods and services may also result in uncompensated spillover benefits, or benefits created by external factors, to third parties or to society at large. The state encourages the emergence of positive externalities. For these purposes, subsidies are provided. Whether the subsidy is given to the consumer (he will be able to pay a higher price) or to the producer (his costs are reduced), in any case this leads to an increase in the consumption of the good. As a rule, the state seeks to provide a subsidy to those who have a greater income elasticity of demand, since the degree of reaction after the subsidy to the consumption of the good will be higher. The state subsidizes health care, education, various charitable programs, since not only the direct recipients of the benefit, but also society as a whole benefit from the implementation of activities in these areas: after all, the more healthy, educated, cultured people there are in society, the more prerequisites for development such a system has. society. Finally, the state has an important role to play in smoothing macroeconomic fluctuations to which the economy is subject.

For example, a chest x-ray or polio vaccinations provide a direct benefit to the direct consumer. Meanwhile, the early diagnosis of TB and the prevention of infectious diseases bring a pervasive and societal benefit from transfusion. Education is another classic example of spillover benefits. Education brings benefits to individual consumers: "more educated" people generally earn higher incomes than "less educated". But education provides great benefits to the whole society; for example, the economy as a whole benefits from having a more versatile and productive workforce on the one hand, and less spending on crime prevention, law enforcement and philanthropic programs on the other. Of significant importance is also the fact that the political activity of the population is in direct proportion to the level of education; for example, in the number of people participating in voting in elections, there is an increase in the share of voters by the degree of education. The existence of spillover benefits simply means that the market demand curve, reflecting only the benefits of individuals and firms, underestimates the overall value of the benefits. The market demand curve does not capture all the benefits associated with the provision and consumption of goods and services whose production entails spillover benefits. Thus, while market demand and supply create an equilibrium value of the product; this value is less than the optimal value of the product. The market system, therefore, does not provide sufficient education; At the same time, resources are supplied to the needs of education in insufficient quantities.

Transformation of spillover benefits. How can the problem of disproportionate distribution of resources associated with the presence of spillover benefits be addressed?

INCREASE DEMAND.

One approach is to increase demand by providing consumers with purchasing power that can only be used to purchase the particular good or service that the spillover benefit is associated with.

INCREASE OFFER.

The opposite approach is implemented on the supply side of the market. Instead of subsidizing consumers with a particular good, the government may find it more convenient and administratively easier to subsidize producers. A subsidy is just a special "tax in reverse"; taxes add additional costs to producers, while subsidies reduce their costs. And from this it follows that the shortage of resources for the production of this product is eliminated. State subsidies for higher education, mass vaccination programs, public hospitals and clinics are all examples of the practical application of the approach we are considering.

GOVERNMENT AS A PRODUCER.

A third solution arises in circumstances where the benefits of spillover are extremely high. The government can simply take over the financing of such industries or, in extreme cases, turn them into the property of the state and directly manage them.

PUBLIC BENEFITS AND SERVICES.

Consider the properties of consumer goods that are produced on the basis of a market system. These goods are divisible, that is, they appear as units small enough to be available to individual buyers. In addition, consumer goods are subject to the principle of exclusion, which states that those who are willing and able to pay the equilibrium price receive the product, while those who are unable or unwilling to pay the price are excluded from the benefits provided by this product. The market in some cases is unable to ensure the production of certain goods and services - the so-called public goods and services or goods. There are quite a lot of similar goods and services classified as public. As a reminder, these include defense products, law enforcement, roads, road markings and signs, and a range of similar products. All these benefits serve the interests of society as a whole, the marginal cost of their production does not depend on the number of consumers, and it is more expedient for the state to take care of their maintenance. The state finances such areas of budgetary funds. It is known that defense spending is today one of the most significant items in the expenditure side of the budget. A large expenditure item is made up of funds allocated for social needs and for the maintenance of the state administrative apparatus. The source of financing is taxes. Moreover, in this case there is no direct connection between the amount of tax paid and real participation in the process of consumption of this public good. Due to the small or non-existent marginal cost that each additional consumer incurs, it makes no sense to build a complex system of payment for public goods, which is why they are financed from the state budget. Public goods are indivisible, they consist of such large units that they cannot be sold to individual buyers. Even more important is the fact that they are not subject to the principle of exclusion, that is, there are no effective ways to exclude individuals from enjoying the benefits of public goods as soon as these benefits arise. Obtaining benefits from consumer goods is based on their purchase, benefits from public goods accrue to society as a result of the production of such goods.

By assuming the content of the public good, the state also solves the problem of minimizing transaction costs: it would be very difficult, for example, to conclude a deal with each participant in traffic on highways, forcing everyone who uses the services of a high-speed highway to pay a certain amount upon entry or exit. It is clear that such a system would create “traffic jams”, make it difficult to travel, and ultimately destroy all the advantages for which such a highway was created. There are goods that, by definition, do not belong to the public (the marginal cost of producing an additional unit of output is not equal to zero), but due to high transaction costs, it is still beneficial for the state to take over their financing. A classic example of such goods is certain types of insurance, mainly related to industrial activities: unemployment insurance, old age insurance. Private insurance companies need expensive advertising, maintenance of the administrative apparatus and insurance agents, which the state does not need. Therefore, the costs of the state in this area are much lower, and it is more expedient for the state to produce such goods, like public goods.

Major spillover benefits. Although the non-applicability of the principle of exclusion to them quite sharply distinguishes public goods from goods for personal use, the government provides many other goods and services to the people to which the principle of exclusion can be applied. In particular, goods and services such as streets and highways, police and fire protection, libraries and museums, preventive health care may well be subject to the principle of exclusion, that is, they can be priced and private producers can provide them to consumers through market system. However, as noted above, these are all services that entail significant spillover benefits, which means that the market system will not produce enough of them. Therefore, the government takes over their production or financing in order to prevent the possible occurrence of a scarce allocation of resources in this area. Such goods and services are sometimes referred to as quasi-public (quasi-public) goods. One can understand the ongoing debate over the status of the public health system and housing. Should these private goods be provided through the market system, or are they quasi-public goods that the state should provide?

ALLOCATION OF RESOURCES FOR PUBLIC GOODS

In conditions when the market price system does not allocate resources for public goods, and does not allocate them enough for quasi-public goods, what should be the mechanism that ensures their production? Unlike consumer goods, which are purchased from private enterprises on the basis of independent decisions of the individuals themselves, public goods are acquired through the government on the basis of group or collective decisions. More precisely, the types and volumes of production of various public goods are determined in a democratic state by political methods, that is, by voting. The volume of consumption of public goods is a matter of public policy. These group decisions in the political arena complement the decisions of households and businesses that provide answers to five fundamental questions. Assuming that these group decisions are made, we must find out exactly how resources are redistributed from the production of goods for individual use to the production of public goods. In an economy where there is full employment, the state is faced with the task of releasing the resources used in the production of consumer goods to direct them to the production of public goods. The self-evident way to free up resources and the private sector is to reduce private demand for them. This is achieved by taxing businesses and households, thereby excluding part of their income, that is, part of their potential purchasing power, from income-expenditure flows. With lower incomes, businesses and households are forced to reduce their investment and consumer spending. In short, taxes reduce the demand for goods and services for private use, and this, in turn, causes a decrease in private demand for resources. By transferring the purchasing power of private economic agents to the government, taxes release resources from the private sphere of their application. Then the government, spending tax revenues, can direct these resources to the production of public goods and services. For example, corporate and personal income taxes free up resources from the production of investment goods (drilling machines, vans, storage facilities, etc.) and consumer goods (food, clothing, televisions, etc.). The government can use these resources for the production of guided missiles, military aircraft, the construction of new schools and highways. The government deliberately redistributes resources in order to make significant changes in the structure of the country's national product.

Stabilization

Historically, the newest and in some ways the most important function of government has been to stabilize the economy, that is, to help the private economy achieve both full employment of resources and a stable price level. At this point, we will confine ourselves to a general description and emphasizing the role (without going into its exhaustive explanation) of the stabilization function of the government. The key point here is that the level of production directly depends on the total, or total, volume of expenditures. The high level of total costs means that it is profitable for many industries to increase output, and this condition, in turn, predetermines the need to achieve a high level of use of both material and human resources. Many economists believe that there are no mechanisms in the capitalist system to raise aggregate spending to just the right level to ensure full employment. Two unfavorable situations may arise.

Unemployment.

Overall spending in the private sector may be too low to realize full employment. In this case, the government is obliged to supplement private spending in such a way that the total amount of spending - private and public - is sufficient to create full employment. How can the government do this? One answer to this question is to use the same method—government spending and taxation—that it uses to reallocate resources to the production of public goods. Specifically, the government should, on the one hand, increase its own spending on public goods and services, and on the other hand, cut taxes in order to stimulate private sector spending.

Inflation. Another situation may arise if society tries to spend more than the productive capacity of the economy allows. When total spending exceeds the value of the product at full employment, the excess spending will cause the price level to rise. Excessive total spending is inflationary in nature. In this case, the government is obliged to eliminate excessive spending. It can do this mainly by cutting its own spending, but also by raising taxes to reduce private sector spending.

In a mixed economy, the government is fully integrated into the circulation of material and monetary resources that form the economic organismal modifications that arise as a result of the government's involvement in the economic process. The federal government pays the salaries of congressmen, pays for the maintenance of military personnel, lawyers in the Justice Department, various kinds of bureaucratic staff, and so on. State and local governments maintain a staff of teachers, bus drivers, police officers, and firefighters. The federal government may also lease or acquire land to expand a military base, and municipalities may purchase land to build a new elementary school. The government also provides public goods and services to both households and businesses. Financing public goods and services requires tax payments by businesses and households. The government also taxes (personal income, wages) directly on households and at the same time makes transfer payments to them (for example, in the form of state charitable and social security benefits) . The structure of taxes and transfer payments can have a significant impact on the distribution of income. A tax structure that draws tax revenues primarily from wealthy households, and which is combined with a system of transfer payments to low-income households, results in greater equity in the distribution of income. The government buys goods and labor that are different from what households buy. For example, if there is unemployment in the economy, an increase in government spending while keeping taxes and transfer payments unchanged should lead to an increase in aggregate spending, output, and employment. In turn, at a given level of government spending, cutting taxes or increasing transfer payments should increase revenues that can be used to spend and thus stimulate an increase in personal spending. On the contrary, when inflation occurs, the opposite policy of the government is required: it is necessary to cut government spending, increase taxes and reduce transfer payments.

The situation in the money market is mainly determined by changes in the supply and demand of money. Let us turn to the study of processes in the money market when their supply changes. This question is extremely important. If the demand for money is formed by producers and consumers, then the state is behind the supply of money. Leaving aside checks and other money substitutes issued by commercial banks, we can say that the state acts as a monopolist in the central money market (rubles, dollars, etc.). The correct organization of money circulation is one of the functions of the state and is included in the minimum necessary boundaries of its intervention in the real competitive market. It happens that the state, for one reason or another, disorganizes the money market, immensely increases the money supply, then it turns into the initiator of inflation. What happens if the government increases the money supply? Since the demand for money has not changed, the interest rate will begin to decline and a new equilibrium will be established in the market, and the new equilibrium rate of interest will be less than the previous one. A change in equilibrium and a decrease in the interest rate will entail changes in the commodity market. Feeling cheaper credit, he will respond with an increase in investment, expansion of production, growth in employment and total income. In turn, the processes in the commodity market will have a reverse effect on the money market. The increased volume of total income corresponds to a different demand for money. As a result, the temporarily established equilibrium will be disturbed. When the new money demand is equal to the new money supply, the rate of interest will increase. The mechanism of short-term regulation by the state of the money market links short-term fluctuations in the demand for money, their supply and interest rates when they change with current or monthly averages. If the money supply has increased, then we can hope that in one or two months there will be a slight increase in the level of interest.

The state, using its monopoly position in the money market and the right to regulate it, systematically and deliberately disturbs the equilibrium of the money market in order to change the rate of interest, bring investment demand in line with the supply of savings, and help establish other macroeconomic proportions. Such monetary policy is usually called Keynesian, thus noting the merits of the outstanding economist of our century, J. M. Keynes (1883 - 1946) in the study of this and other mechanisms of the modern market economy. Over time, Keynesian monetary policy has become one of the most common ways for government to influence the economy. It is difficult to name a country with a developed market economy where one or another variant of the monetary regulation of interest rates could be dispensed with. It soon became clear, however, that it was contradictory. On the one hand, as expected in theory, successive cash injections often resulted in cheapening of credit, there was an increase in investment and production, although not for long, and a decrease in unemployment. On the other hand, this result was achieved at an increasingly expensive price: inflation was unfolding in the economy, which called into question the high activity of the state in the sphere of monetary circulation. Economic practice has put economists and politicians in front of the need to develop rules for the state's behavior in the money market, which would allow preserving the regulatory function of monetary policy, but making it non-inflationary.

LIQUID TRAP: Suppose the government continues to increase the money supply. At the same time, the mechanism of short-term regulation of the money market will work every time: first, interest rates will decrease, stimulating investment and production, total income will increase, and with it the demand for money, which will cause an increase in the rate of interest and the establishment of a new equilibrium of the money market, etc. d. Sooner or later, the state will approach such a value of the money supply in the vicinity of which the demand curves for money at any values ​​of income asymptotically tend to the minimum rate of interest. circumstances without falling below it. This situation in the money market will affect other markets as well. It is known that investments react only to changes in the rate of interest. If there are practically no changes in the rate of interest, then the commodity market ceases to feel the influence of the money market, the growth of capital investment stops, as a result of which it becomes impossible to further expand production, increase aggregate income, and hence the demand for money. The interaction between the money and commodity markets ceases. The state, irresponsibly increasing the money supply and reducing the rate of interest to a critically low level, provokes exceptionally high preferences for liquidity. The saver sees a low rate of interest as a sure sign that the market prices of bonds and stocks are high, refuses to buy them and keeps cash, which increases the negative pressure on investment.

Thus, with an unlimited increase in the supply of money, a situation dangerous for the economy arises, which is characterized by a violation of contacts within the market system, which prevents the restoration of equilibrium in the money market. In world economic science, such a situation is called a liquid trap. What happens in an economy that has fallen into a liquidity trap? If the money market continues to increase the supply of money at a consistently low rate of interest, then at the same time in the commodity markets, devoid of stimulating impulses from the money market, the growth of investment, production and supply of goods stops. It turns out that the national economy receives an increasing money supply, which has an insufficient commodity coverage. It is clear that this unpleasant combination is fraught with inflation. It would seem that the economy has a chance to get out of the liquidity trap using the Pigou effect. Indeed, the expansion of the money supply affects aggregate income not only indirectly through interest rates, investment and production, but also directly. Consequently, having a higher income, the participants in the economic system will spend its increase both on current consumption and on savings. Since an inflationary rise in prices occurs in an economy that has fallen into a liquidity trap, the subjects will begin to act in accordance with the Pigou effect - to consume less and save more. This behavior is dictated by market psychology, hopes for future price cuts, and a desire to preserve the real value of savings. In this case, a way out of the liquidity trap is visible: part of the savings will turn into additional demand for money, the interest rate will increase, contributing to the establishment of equilibrium in the money market. Such events can occur provided that the effect of real cash balances actually takes place. In an inflationary economy, this is difficult, since there is not only an increase in prices, but also changes associated with it in the economic psychology of subjects. They stop believing in price cuts and develop inflationary expectations that influence economic decisions. Individuals begin to boost current demand at the expense of savings, which is equivalent to the termination of the Pigou effect. Thus, the economy finds itself in a liquidity trap, which is locked with a lock of inflationary expectations. Obviously, the money market does not have its own mechanism for getting out of the liquidity trap. If the economy is in it, then you can get out only if the situation on the goods market is favorable, for example, an improvement in the investment climate or some other circumstances that will lead to an increase in total income, which will entail an increase in the demand for money, an increase in interest rates, etc. .d.

After the initial impulse associated with an increase in the money supply, the money market is in a position of equilibrium. Suppose that the government, intending to give another boost to investment and production, resorts to expanding the money supply. It is clear that the mechanism of short-term regulation will start working again, causing another increase in total income, but it will be distributed somewhat differently than before. The repeated increase in the money supply by the state, having accelerated the known market processes, at the same time contributes to the strengthening of inflationary expectations. Now, observing the rise in prices, the subjects of the economy will make decisions taking into account inflationary expectations, i.e. they will prefer not so much to save the increase in income as to direct it to current consumption. The growth of savings and the demand for money will begin to slow down. The market will come to a position of equilibrium. Of course, the state has the right to continue such a monetary policy, giving another impetus and increasing the money supply. It is obvious that this time inflationary expectations will only strengthen and the increase in current consumption to the detriment of savings will be more significant. With the development of inflationary processes, the reaction of the commodity market to changes in the situation on the money market becomes even weaker. At the same time, the rate of interest was reduced to a lower value than in the previous impact. Thus, the more persistently the state seeks to reduce the rate of interest, the less results it achieves and the lower the effectiveness of its monetary policy. Over time, the short-term effect of the market mechanism approaches zero. With successive attempts by the state to regulate the money market by influencing the money supply for a long time, the rate of interest fluctuates - first it decreases, and then it necessarily rises, tending to an equilibrium value. This happens repeatedly, and the amplitude of oscillations (the maximum deviation from the equilibrium position) decreases. Therefore, the equilibrium rate of interest does not depend on how many times the government resorts to monetary expansion and how much money it injects into the economy. This phenomenon of the money market is known in economics as the Fisher effect: in the long run, the rate of interest loses its connection with the supply and demand of money (we will encounter a similar situation in the labor market, where in the long run the state is not able to reduce the natural rate of unemployment). Note that the reality of the Fisher effect is confirmed by a series of econometric developments, when long-term, for example, calculated on an average over five years, values ​​of money market parameters - interest rates, money supply, etc. are compared.

Thus, the money market operates in two modes - short-term market fluctuations in the rate of interest and long-term equilibrium. The condition of long-term equilibrium of the money market expresses M. Friedman's equation: Ms = Y + Pe where Ms is the long-term (average annual) growth rate of the money supply; Y is the long-term (average annual) growth rate of real total income; Pe is the expected rate of inflation growth. Recall that in the adjusted conditions of the short-term equilibrium of the money market, the price is not present. And this is quite justified, since the state influences interest rates, in the market fluctuations of which the price does not participate. On the contrary, in the long term, according to the Fisher effect, the rate of interest does not depend on the supply and demand of money, so it is not in the formula. The goal of long-term monetary policy is to maintain sustainable economic growth with a low controlled inflation rate. If we assume that the value of Y is known, then to solve this problem, to choose the correct value of Мs, it is necessary to know the price growth rate corresponding to the non-inflationary development of the national economy. Therefore, in the equation of long-term equilibrium, Pe appears - the price level, which is characteristic of an economy where the money market is constantly in a position of short-term equilibrium, i.e. meets the conditions excluding inflation. Since the state, by regulating the rates of interest, disturbs the equilibrium, Re shows how prices could rise, provided that the state refrains from monetary regulation of the rate of interest, investment and production; it is an indicator. Taking into account that in the long run the influence of the velocity of money turnover is insignificant, we obtain the equilibrium of the money market, expressed by the formula of M. Friedman. Reasoning about the money market makes it possible to draw a number of conclusions that should be taken into account in economic policy. First, the rate of interest is one of the most important regulators of the money market, which affects investment demand and the supply of savings. The analysis carried out allows us to state with confidence that without sufficiently free fluctuations in interest rates, the market mechanism will not work. This means that in a modern market economy, the rate of interest should not be set administratively. If the state resorts to command methods, forcing commercial banks to accept deposits and lend money at a strictly fixed percentage, then the mechanisms operating in the goods and money market are likely to stop. Savings will inevitably begin to move to where the rate of interest is established under the influence of supply and demand, i.e. market way. Speculation with money will unfold, underground usury will flourish. Essentially the same thing will happen as happens with centralized price planning. To resold at speculatively high. The prices of goods and services will also be joined by money pushed out of the official economy by the ill-considered actions of the state, which will no longer be able to control the money supply that is in the shadow circulation, which is fraught with increased inflation. Secondly, the state has the right to use indirect methods of influencing interest rates, in particular, to pursue a short-term monetary policy. Otherwise, it is unlikely to be able to carry out anti-inflationary regulation of the national economy. It must be admitted that the modern state does not have so many ways of managing the economy that it can afford to abandon the monetary regulation of the rate of interest, investment and production. However, monetary policy instruments should be used with great caution. Third, any decisions regarding short-term changes in the money supply must be designed in such a way as to exclude the possibility of falling into a liquidity trap. Otherwise, a sharp acceleration of inflation will become inevitable. Short-term monetary tactics are admissible only within the framework of a long-term monetary strategy based on the fundamental equilibrium equation of M. Friedman. Let's take a hypothetical example. Assume that for a three-year period, the calculated average annual growth rate of the money supply is 7%. Suppose that in the first year the situation in the economy developed in such a way that the state had to go for short-term monetary regulation of the rate of interest, investment and production, as a result of which this indicator increased to 10%. If next year the situation remains the same and the monetary expansion continues to be measured at 10%, then in the third year there will be nothing left but to limit the growth of the money supply to a hard limit of 1%. Of course, provided that the state firmly intends to ensure non-inflationary development of the economy.

The theory of public choice deals with the study of the relationship between economic and political phenomena. Within the framework of this theory, a search is being made for principles of economic regulation that would make it possible to take into account the political and social features of society. Typical issues addressed by public choice theory are public finances, the voting process, government activities, and so on. A feature of the public choice theory approach is that private interest is seen as the main motive not only in everyday life and business, but also in public life. Any decision taken by society depends on the voters' economic assessments of their costs and benefits in connection with its implementation. The most important decisions that government organizations must make are related to the production of public goods.

In public life, people behave based solely on their private interests, which does not always lead to a result that meets the interests of society as a whole. The practice of direct democracy assumes that each taxpayer is legally able to vote on any specific issue related to the financing of the production of public goods. In modern countries with a developed market economy, the practice is not direct, but representative democracy: all those who have the right to vote periodically elect their representatives to the legislature, and only the elected legislators implement certain decisions, including those related to the financing of public benefits, the provision of subsidies, the introduction of customs tariffs, etc. Under such conditions, well-organized pressure groups, or lobbies, have the greatest chance of realizing their economic interests through an official. These can be farmers' organizations, powerful industry trade unions, the military-industrial complex, and so on. The theory of public choice considers the decision-making process in a representative democracy as a kind of market transaction, or bargaining: "You provide me with votes in elections - I provide you with the implementation of specific government programs that satisfy your interests." Lobbyists are looking for nothing more than political rent (“pursuit of political rent”, in terms of economic theory). Political rent is the receipt of economic rent through political institutions or, in other words, through the political process. Pressure groups receive political rent when legislators make a government decision to impose import duties (domestic producers of a similar product win), allocate multi-billion dollar funds for guaranteed purchases of military products, and so on. It should be noted that representatives of the theory of public choice are not, as American economists E. Dolan and D. Lindsay note, incorrigible cynics, assuming that a public official pursues without fail, always and only his own private benefit. The point is different, namely, that the realization of public interests is intertwined with the realization of private interests. And this approach makes the model of political decision-making more consistent with reality. Public choice theory makes extensive use of the microeconomic approach to explain the process of political decision making. Proponents of the public choice theory come to the conclusion that it is precisely for economic reasons that political inequality exists and inappropriate decisions are possible. The most important of these reasons are:

1) Violation of the proportions between marginal costs and marginal benefits, discussed above, can lead to an incorrect, from a social point of view, economic decision.

2) Inequality in obtaining information.

Better informed people with high incomes, well-organized lobbying groups. Hence, they maximize their profits by collecting political rents. Inequality in obtaining information is also associated with a phenomenon present in the system of representative democracy and called rational ignorance. Let us suppose that it is necessary to evaluate a government decision, the implementation of which will bring benefits to society as a whole, although certain groups of the population may lose (for example, the elimination of subsidies to any sector of the economy). However, each individual voter will receive little benefit from this (the total benefit will be distributed among the entire population). In such circumstances, voters behave apathetically or indifferently, which is called rational ignorance - it makes no sense for a large number of people to collect and evaluate information about this project, to organize for an almost imperceptible benefit. But the disadvantaged minority, which will suffer from the removal of subsidies, will be organized into pressure groups, which were mentioned above.

3) The dishonesty of public officials (public bureaucracy), who, in pursuit of their private interest, seek to get the largest number of votes in the next elections and make such decisions that will help them achieve this (publicly popular decisions), although they may be disadvantageous from an economic point of view efficiency. In addition, they may be subject to purely personal interests, like all ordinary people, and these personal interests may at some point exceed the sense of duty as a public person.

4) Disproportionate time horizons. Thus, the elections will be held this year, and the consequences of the implemented election promises will appear later. In the long run, the tax rate, above which it makes no sense to raise the bar, turns out to be at a lower level. But the decision to change tax rates is being made by legislators today, and it could be wrong. The supporters of public choice see the solution to all these problems in the free development of market processes, although they do not deny the positive role of the state, which is able to correct the imperfections of the market mechanism within certain limits.

So, let's single out the main forms and methods of state intervention in the economy. Two main forms: direct intervention through the expansion of state ownership of material resources, lawmaking and management of industrial enterprises and indirect intervention through various economic policies. Direct intervention: In all industrialized countries there is a more or less significant state sector of the economy. Its size can serve as a criterion for the economic role of the state, although it is not absolute. The state has capital in a variety of forms, provides loans, takes equity participation, and is the owner of enterprises. This makes the state the owner of part of the social capital. A fairly large group of people is employed in the public sector of Western countries: from 11% of the total number of employees in France and Italy, to 8-9% in Germany, Belgium and Holland. In all industrialized countries, the formation and development of the public sector took place in almost the same industries (coal industry, electric power industry, sea, rail and air transport, aviation and astronautics, nuclear energy, etc.). We are talking, as a rule, about industries where investment resources, that is, the totality of equipment and machinery necessary for production, are of particular importance and their cost is high. However, this amount of investment resources makes these industries very sensitive to competition and periodic crises. Direct state intervention - This is the adoption of legislative acts designed to streamline and develop relations between all elements of the market system. Examples of state regulation of the economy through the issuance of legislative acts are extremely diverse. These include, in addition to the antitrust laws of the United States, the provisions on cooperation in France, etc. Indirect intervention: encouraging investment and restoring the balance between savings and investment; ensuring full employment; stimulation of export and import of goods, capital and labor force; the impact on the general price level in order to stabilize it and the prices of certain specific goods; supporting sustainable economic growth; redistribution of income and some other purposes. To carry out these various measures, the state resorts mainly to fiscal and monetary policy. Fiscal policy is budgetary policy. It can be defined as a policy pursued by regulating the money supply in circulation and improving the credit sector. Both these areas of public policy are closely related to each other. Countries with a market economy that began to take shape 2-3 centuries ago are constantly looking for the optimal combination of state regulation and the functioning of a naturally formed market mechanism. Countries with an established centralized economic system are trying, in the course of denationalization, to revive private interest with the help of the state, without which there can be no market.

State regulation must be carried out within certain limits. These limits are set by the scale of the "fiasco" of the market as a whole and the specific economic situation. Skillful state regulation makes it possible to eliminate those "failures" that cannot be filled using exclusively the market mechanism. And following Abraham Lincoln, we can say: “The rational purpose of the state is to do for the people what they need, but they themselves cannot do it at all or cannot do it properly” .

The market system is characterized by the dominance of private property, the social division of labor, and the broad development of exchange relations. The market arises in a traditional society. Gradually, it turns into an integral capitalist system, which is based on private enterprise. With the multiplicity and specificity of its specific modern options, they all develop on the basis of highly developed technology, mixed ownership and active participation of the state in the economy. The market system has specific incentives and principles of management. They are based on the freedom of enterprise, the freedom of professional choice for everyone who wants to work, the freedom of entrepreneurial choice for each buyer (within the limits of his financial capabilities). The incentive for entrepreneurial activity and market choice is private economic interest. Entrepreneurs are interested in maximizing profits (or minimizing production costs), owners of production factors are interested in obtaining high income, and consumers, when buying goods and services, seek to optimize their benefits.

Freedom of enterprise, freedom of choice and personal interest form the relationship of competition between participants in the market exchange. These relations are realized through a system of market prices, which reflects the preferences of consumers and forces entrepreneurs and owners of production resources to adapt to them. Thus, the price mechanism coordinates the development of a market economy. Its effectiveness depends on the number of participants in the market system, on the degree of their freedom in decision-making. The problem of "what, how much, how and for whom to produce" in a market system is solved on the basis of price signals. Resources are directed to those industries whose products, at a given price level, are in demand and make a profit for producers. The current level of market prices, creating favorable conditions for efficiently operating producers, determines the technology for the production of goods, stimulates its improvement. Market prices have a decisive influence on the distribution of products entering the market. First, price is an important criterion for consumer choice. Second, the prices of factors of production shape the size of society's income and, therefore, determine the purchasing power of various segments of the population.

The price mechanism acts as an organizer and coordinator of the market economy. Prices play the role of a signaling system by which both entrepreneurs and owners of productive resources navigate the market. This signaling system works effectively only in conditions of free competition. First, this is because only in such a situation do price signals accurately reflect market demand; secondly, it is competition that forces market agents to act in accordance with these signals; thirdly, it ensures convergence of private and public interests. While positively evaluating the effectiveness of incentives and management principles inherent in a market economy, one cannot ignore its inherent disadvantages. They are a consequence of the laws of the market, which give rise to tendencies towards unstable development of the economy (inflation, unemployment, falling growth rates), to increased inequality in the distribution of income. Therefore, the modern market system is characterized by state intervention in economic development. Its scope and forms vary widely from country to country. But in a market economy there are objective boundaries for expanding the economic functions of the state. By correcting the action of the market mechanism, mitigating its negative aspects, the state should not undermine the foundations of market pricing and free competition.

Regulatory functions of the state in a market economy are reduced to three main ones - legislative, stabilizing, distributive.

The legislative function provides that the state develops a system of economic, social and organizational-economic laws and regulations that establish certain "rules of the game", that is, the legal foundations of a market economy, thus guaranteeing the same rights and opportunities for subjects of all forms of ownership and management.

To protect competition as the main condition and regulator of a market economy, the state develops antimonopoly legislation. This enables the subjects of a market economy to realize their interests, makes them act in concert and not violate the objective laws of the market. And it happens naturally, without commands and orders. The stabilizing function of the state is to maintain a high level of employment and price balance, as well as to stimulate economic growth. To do this, the state: 1) determines the goals, directions and priorities of economic development, allocates appropriate resources for their implementation, uses monetary and fiscal leverage 2) takes over the organization of the money supply; 3) provides employment for the population and a stable level of prices, pursuing an appropriate fiscal and monetary policy aimed at preventing inflation and unemployment.

The distribution function is connected, on the one hand, with the achievement of a more equitable distribution of income in society, and, on the other hand, with a more efficient allocation of resources in a market economy. To perform this function, which contributes to the correction of certain shortcomings of the market system, the state: 1) redistributes the funds of population groups that have high incomes in favor of the disabled and low-income, pursuing an appropriate fiscal policy, a policy of price regulation; 2) establishes and controls the minimum wage; 3) assumes the function of providing public goods, in the production of which private and collective entities are not interested, but without these benefits the existence of society is not possible.

The performance of regulatory functions by the state in a market economy ensures the achievement of a balance in the economy at the macro level, the implementation of an effective monetary policy, and the social protection of low-income strata of the population. Without the regulatory influence of the state, it is impossible to carry out structural transformations, modernization of the material and technical base of some industries.

The government is a collegial body of general competence that manages the executive and administrative (i.e. administrative) activities in the country. It consists of the heads of the most significant bodies of the central administration, and sometimes representatives of the lower administration.

INTRODUCTION
1. General characteristics of the economic functions of the government
1.1. Analysis of the relationship and concepts of government and economy





2.4. Analysis of the economic function of the government "Redistribution of resources"
2.5. Analysis of the economic function of the government "Stabilization"
3. The main functions and tasks of the Government in a crisis
Conclusions

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Considering that some of these markets, especially the securities markets, are very easily managed, i.e., changing their “temperatures” requires almost no financial investments, the media or simply controlled “information leaks” from the authorities are enough to manage them, decision makers. The possibilities of governments to extract funds from economic systems are practically unlimited - up to the complete destruction of the economy.

This is one of the main arguments that encourages civil society (usually through parliamentary oversight) to severely restrict the activities of governments. Empirically, this is evidenced by the practice of creating central banks independent of government decisions, as well as (in cases where, due to the peculiarities of the political culture, ensuring the independence of the central bank is difficult) the establishment of currency funds, pegging the national currency to one or more stable foreign currencies in order to eliminate the possibility political manipulations in the economy carried out by central banks under pressure from governments.

1.2. The concept and significance of the economic functions of the government

In a mixed economy, the government is fully integrated into the circulation of material and monetary resources that form the economic mechanism. All really functioning economic systems are "mixed" systems; everywhere government and the market system share the function of answering the central questions of economics:

1. What and how much should be produced? To what extent or what part of the available resources should be borrowed or used in the production process?

2. How should these products be produced? How should production be organized? Which firms should produce and which technology should be used?

3. Who should receive these products, how should they be distributed among individual consumers?

Different economic systems of the world and individual states differ from each other in the ratio of the roles of the government and the market in managing the economy. The differences relate to the set of methods and forms of regulation, the limits of one form or another, as well as the direction of economic regulation. However, in all cases, the economic functions of the government in the development of the economy play a very significant role.

It is difficult to quantify the economic role of the government in managing the economy. This role is carried out on such a large scale that in fact it is impossible to compile an exhaustive list of its economic functions. With a certain certainty, it is possible to establish the share of the national product produced under the auspices of the government, the total volume of products purchased by the state, the share and absolute size of public investment.

But how do you quantify government regulations designed to protect the environment, protect the health and safety of workers, protect consumers from hazardous products, ensure equal access to job vacancies, and control pricing practices in certain industries, etc.?
Some of the economic tasks of the government are designed to support and facilitate the functioning of the market system.

These include:

1. Ensuring a legal framework and a social atmosphere conducive to the efficient functioning of a market economy.

2. Protection of competition.

3. Redistribution of income and wealth.

4. Correcting the distribution of resources in order to change the structure of the national product.

5. Stabilization of the economy, control over the level of employment and inflation, stimulation of economic growth.

The tasks of providing a legal basis for a market economy are resolved by introducing rules of conduct that should guide producers in their relations with consumers. Government legislation concerns the definition of property rights, business relations, the prohibition of the sale of counterfeit products and medicines, the setting of quality standards, product labeling, responsibility for compliance with contract terms, and so on. The measures of the state to protect competition have already been mentioned.

One of the economic functions of government is related to the redistribution of income and resources. In the distribution of income, the market system can generate large inequalities. In the short period of transition to market relations in the CIS countries, millionaires-billionaires quickly appeared, and tens of millions of people found themselves below the poverty line.

In stable states, governments develop and implement social security programs, set minimum wages, unemployment benefits, fix prices in order to increase the incomes of certain groups of the population, and establish differentiated tax rates on personal incomes of the population. Thus, governments regulate the distribution of income through direct intervention in the functioning of the market and indirectly through a system of taxes and other payments. Through the mechanism of taxation and public spending on social security, an increasing share of national income is transferred from the relatively rich to the relatively poor.

The fourth function is related to adjusting the distribution of resources in order to change the structure of the national product. The assertion that one of the virtues of a competitive market system is to ensure an efficient allocation of resources for the production of goods and services is true under one important assumption: all the benefits and costs associated with the production and consumption of each product are fully reflected in the market supply and demand curves.

The government may impose a special tax that is equal to or very close to the cost of spillage per unit of output. Adjustment can be made in the direction of increasing demand or supply. For example, in the United States, the food stamp program is designed to improve the diet of low-income families. The point of this program is that better nutrition will help poor children do better in schools and low-paid adults do their jobs better. More productive work of participants in the economic process brings benefits to the whole society. The opposite approach is taken on the supply side of the market, when the government subsidizes producers (non-repayable loans, subsidies for education, health care, etc.).

2. analysis of the main economic functions of the government

2.1. Analysis of the economic function of the government "Legal framework and social structure"

The government provides the legal framework and specific services necessary for the efficient operation of a market economy. The legal framework includes measures such as granting legal status to business enterprises, defining private property rights, and enforcing agreements (contracts). The government also establishes legal "rules of the game" that govern the relationship between firms, resource providers, and consumers. Through legislation, the government can act as a judge or arbitrator in economic relations, detect cases of foul play, and exercise the power to impose appropriate penalties.

The services provided by the government include police activities to maintain internal order, the application of a system of standards for measuring the weight and quality of products, and the provision of a monetary system that facilitates the exchange of goods and services.

The Purity of Foods and Drugs Act of 1906 is a good example of government reinforcing the operation of the market system. This law establishes the rules of conduct that producers must obey in their interaction with consumers. It bans the sale of counterfeit and misbranded foods or drugs, requires the net weight and ingredients of a product to be stated on packaging, introduces quality standards to be on the labels of canned foods, and prohibits false labeling of patent medicines. These measures are designed to prevent possible fraud on the part of producers and to strengthen public confidence in the reliability of the market system. Similar legislation regulates the relationship of employees with the management of firms, as well as the relationship of firms among themselves.

It is assumed that such government actions improve the allocation of resources. By providing the market with a medium of exchange, guaranteeing the quality of products, defining property rights, and facilitating contract enforcement, the government increases the volume of trade transactions. This expands markets and allows greater specialization in the use of material and human resources. And this specialization means a more efficient allocation of resources. However, some believe that the government interferes excessively in the relationship between firms, consumers and workers, thereby suppressing economic incentives and reducing the efficiency of production.

2.2. Analysis of the economic function of the government "Promotion of competition"

Competition serves as the main regulatory mechanism in the capitalist economy. It is a force that subordinates producers and resource providers to the dictates of consumers. In competition, the buyers are the masters, the market is their agent, and the firms are their servants.

Things are quite different under monopoly conditions. Monopoly occurs when the number of sellers is reduced so much that each seller gets the opportunity to influence the total supply and, consequently, the price of the goods sold.

In a monopoly, sellers are able to influence or manipulate the market for their own benefit at the expense of society as a whole. Thanks to their ability to influence the total supply, monopolists are able to limit the production of a certain product, charge higher prices for it, and often receive a constant economic profit. These prices and profits above a certain level are in direct conflict with the interests of consumers. Monopolists do not submit to the desires and will of society, as do competing sellers. To the extent that the monopoly suppresses competition, the dictate of the sellers suppresses the dictate of the consumers. Under a monopoly, resources are distributed in the interests of sellers seeking to make a profit, and not to satisfy the interests of society as a whole. Monopoly leads to misallocation of economic resources

In the United States, the government has tried to control the monopolies mainly in two ways.

1. Regulation and ownership.

In "natural monopolies", that is, industries where technical and economic factors exclude market competition, the government has created public commissions to regulate prices and quality standards for their services. Industries that are more or less subject to such regulation include transport, communications, electric power and other public utilities. And at the level of local governments, state ownership of electricity and water supply enterprises has been extended.

2. Antitrust laws.

In almost all markets, production efficiency can only be achieved with a high level of competition. Therefore, the federal government has enacted a series of antitrust or antitrust laws, beginning with the Sherman Act of 1890, designed to maintain and strengthen competition as a regulator of business activity.

Even if there is a legal basis for capitalist institutions and in a competitive environment, there is still a need for the government to perform additional economic functions. The market economy has certain disadvantages and limitations that force the government to supplement and modify its activities.

2.3. Analysis of the economic function of the government "Redistribution of income"

The market system is impersonal. And the distribution of income in it may turn out to be much more unequal than society would like. The market system provides very large incomes to those whose work, due to inherited abilities and acquired education and qualifications, requires high pay. Or the one who, through hard work or easy inheritance, has inherited valuable capital and land, also receives high incomes from his property.

But other members of society are of lesser ability, have received a more modest education, and have not accumulated or inherited any property. Therefore, their income is very low. Moreover, many elderly and disabled people, as well as single-parent families (single mothers) receive very little income in the market system or, like the unemployed, receive no income at all. In other words, the market system is characterized by significant inequality in the distribution of money income, and hence in the distribution of the total product between households. Poverty in the midst of general abundance remains one of the main economic and political problems of society.

The role of the government in smoothing income inequality is manifested in the implementation of various policies and programs.

1. Transfers.

Transfer payments provide emergency assistance to people in dire need of their livelihoods, regular support for dependents and the disabled, and unemployment benefits for the unemployed. Social Security and Medicare provide financial support to retirees and the elderly. These programs redistribute government income to households that would otherwise have very limited or no means of subsistence.