Applying Economics to Real-World Policies: Insights into Government Spending and Social Security

Abstract

Cases: Applying Economics to the Real World student’s name name [Author] course name and number instructor’s name Cases: Applying Economics to the Real World The application of economics to real world cases demonstrates how concepts could facilitate the interpretation of policies and led to better planning. A key area in the field is government spending and taxation and the role of the concepts in sustaining democracy. Changes in government spending and composition seek to increase the capacity of the government to meet the needs of its citizens (Marshall et al., 2022). Over the years, there has been a significant change in composition with the reduction in military spending and an increase in transfer of payments. While the changes have benefited some groups, they fail to favor the contributors of taxes in the middle-income groups. The case of social security is important since it highlights the limitations in the existing system in terms of sustainability and inequality (Falsetta et al., 2023). The program fails to meet the needs of the low-income groups and the black employees as a result of its payment structure that ends when retirees die. The cases on applying economics demonstrate the need to align taxation with changes in government spending and the need to change to current social security system to one that accommodates individual accounts for employee. Case 1: Government Spending and Taxation Change in Government Spending and Composition The United States government spending has changed significantly over the past decades to cover the critical needs of the American people. Government spending experienced a major increase during the First World War when it increased 7 times from $760 million in 1916 to $6 billion in 1920 before decreasing in the 1930s. Additionally, there was a major increase in the government spending during Second World War reaching $45 billion (Gwartney & Stroup, 2014). Other significant changes in the government spending were the increase during the Cold War Era and the Vietnam War. Consequently, the majority of the changes in the government expenditure in the 19th century towards the 1980s and 1990s resulted from the rise of the defense budget. The changes in the late 1990s and the 21st century have focused on facilitating programs that seek to increase access to key services for the American people. In particular, the rise in government spending in 2009 and during the COVID-19 pandemic ensured the access to stimulus packages for the consumers. During these periods, the composition of government spending changed to accommodate the challenges affecting the consumers during the crises occurring at the time (Marshall et al., 2022). The composition of government spending further shown a reduction in defense spending while there has been an increase in healthcare programs for the adult population. With the ageing American population, the future of spending by the government has to accommodate the need of the individuals in the age group. Transferring resources to programs offering services to the older adults will lead to a reduction in the expenditure the United States allocates to the defense sector. Effect of Change in Government Spending on Living Standards The effects of changes in government spending have affected the American people differently depending on how the changes target their group. The living standards of the older adults is likely to improve as a result of the allocation of more resources to health and welfare programs (Marshall et al., 2022). As the government spends less on defense and improves the healthcare services for the target group, their living standards have improved over time. Additionally, the change in the composition benefits the low-income populations that benefit from the distribution of income through government spending. More resources available for programs targeting the poor will increase the welfare of the bonfires and improve their living standards (Gwartney & Stroup, 2014). However, the same is not true for the Americans in the middle-income groups who may not benefit from the social programs the government offers to the underprivileged populations (Roth et al., 2022). The need to increase spending on programs targeting particular groups leads to a rise in government expenditure and the need for higher taxation of the working middle and high-income groups in the United States. Little Taxation and Government Spending Little taxation and increased government spending on the population has potentially catastrophic effects on the country’s democracy. The functioning of key government programs depends on the capacity of the people to contribute sufficient taxes to fund important operations (Li, 2023). Consequently, it is the responsibility of every American citizen to be willing to pay their share of taxes to facilitate the functioning of the government. The composition of government spending has changed and led to an increase in the resources allocated to the poor and vulnerable populations. If most people want to belong to groups where they benefit from spending without paying taxes, the country will fail to function (Gwartney & Stroup, 2014). The democracy requires people to contribute their share of taxes while having access to the benefits of government spending. There should be a balance between the willingness to pay taxes and the benefits people want from their government. Proposition of Best Government Spending The best composition of government spending is one that recognizes the needs of the population and balances with the taxation levels. It is important that the majority of the U.S. population pay their share of taxes and benefit equitably from government spending (Li, 2023). While social programs such as healthcare are important in meeting the needs of the underprivileged populations, there should be a balance in the spending on the programs to match taxation. The government must avoid overtaxing the Americans in the middle-income groups to facilitate the provision of programs that directly benefit a section of the population. I find that the best model would ensure that most people pay taxes and the majority benefit from key programs. Healthcare and income transfers should increase to cover the needs of the population while the defense sector should experience cuts in expenditure (Falsetta et al., 2023). The United States spends much more on defense than any other country despite the recent declines in spending in this area. More resources should be transferred to the healthcare and income transfers areas of spending to meet the needs of the ageing population. Case 2: The Economics of Social Security Social Security vs Private Insurance Social security systems play a vital role in ensuring income distribution by providing a steady income...