A High School Economics Guide

Supplementary resources for high school students

Definitions and Basics

Public Choice Theory, from the Concise Encyclopedia of Economics

Public choice theory is a branch of economics that developed from the study of taxation and public spending. It emerged in the fifties and received widespread public attention in 1986, when James Buchanan, one of its two leading architects (the other was his colleague Gordon Tullock), was awarded the Nobel Prize in economics….

What You Need to Know About Public Choice, at LearnLiberty

Government Spending, from the Concise Encyclopedia of Economics

In the past, government spending increased during wars and then typically took some time to fall back to its previous level. Because the effects of World War I were not totally gone by 1929, the line for the United States from 1790 to 1929 has a very slight upward slant. But in the second quarter of the twentieth century, government spending began a rapid and steady increase. While economists and political scientists have offered many theories about what determines the level of government spending, there really is no known explanation for either part of this historical record….

Considering what governments spend money on may help. Government spending on so-called public goods, national defense and police, for example, is sometimes blamed.

It is frequently asserted that the government spends much in helping the poor. Although the government does do so, the bulk of all transfer payments go to people who are relatively well off.

Economists trying to explain government spending have recently attributed it to special interest coalitions lobbying the government to transfer wealth to them. The term economists use to describe such lobbying is “rent-seeking.”

Political Behavior, from the Concise Encyclopedia of Economics

Political activity, however, is startlingly different from voluntary exchange in markets. In a democracy groups can accomplish many things in politics that they could not in the private sector. Some of these are vital to the broader community’s welfare, such as control of health-threatening air pollution from myriad sources affecting millions of individuals, or the provision of national defense. Other public-sector actions provide narrow benefits that fall far short of their costs….

Michael J. Boskin, The Anatomy of Government Failure, at the Hoover Institution.

…  the costs of government regulation may be higher than the benefits—the cure may be worse than the disease. Before undertaking a new government intervention or adopting a new rule, instituting a new program or expanding an old one, the problem of “government failure” has to be considered.

Bryan Caplan, Market Failure Theory as a Reproach to Government Practice at EconLog. January 14, 2019.

Contrary to popular belief, however, market failure theory is also a reproach to every existing government.  How so?  Because market failure theory recommends specificgovernment policies – and actually-existing governments rarely adopt anything like them.

If Markets Fail, Governments Fail Harder, by Kyle Swan at LearnLiberty. August 31, 2016.

Just like there are several well-theorized sources and examples of market failure (e.g., externalities and public goods), there are likewise several well-theorized sources and examples of government failure. In cases of corruption, government officials use their control of public resources to advance their private ends. An official may be in charge of some project and solicit bribes in exchange for granting the government contract supporting it.

In the News and Examples

Externalities: Market Failure or Political Failure? at LearnLiberty

Winston on Market Failure and Government Failure at EconTalk. December 28, 2009.

Clifford Winston of the Brookings Institution talks about the ideas in his book, Market Failure vs. Government Failure,with EconTalk host Russ Roberts. Winston summarizes a large literature on antitrust, safety regulation and environmental regulation. He finds that government regulation often fails to meet its objectives. While markets are imperfect, so is government. Winston argues that idealized theories of government intervention based on textbook theories of market failure are not the way regulation turns out in practice. He argues that special interest politics explains much of the disappointing outcomes of government regulation.

Drug Lag, from the Concise Encyclopedia of Economics

The modern history of drug regulation in the United States has been marked by the simultaneous pursuit of two goals—safety and efficacy. Since passage of the 1962 amendments to the Food and Drug Act, most members of the medical and regulatory establishment have regarded those two goals as complementary. By the early seventies, however, critics had begun to charge that the Food and Drug Administration (FDA), in its pursuit of these goals, was delaying or preventing the timely introduction of promising new drugs for seriously ill patients….

Satire on lobbying illustrating the unintended consequences of government policies: “A Petition”, by Frédéric Bastiat (pronounced bas-tee-AH or basically-tee-AT). Chapter 7 in Economic Sophisms

From the Manufacturers of Candles, Tapers, Lanterns, Candlesticks, Street Lamps,….

To the Honorable Members of the Chamber of Deputies….

You are on the right track. You reject abstract theories and have little regard for abundance and low prices. You concern yourselves mainly with the fate of the producer. You wish to free him from foreign competition, that is, to reserve the domestic market for domestic industry….

We are suffering from the ruinous competition of a foreign rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him, and a branch of French industry whose ramifications are innumerable is all at once reduced to complete stagnation. This rival, which is none other than the sun,…

Bruce Bueno de Mesquita on Democracies and Dictatorships. EconTalk podcast episode, February 2007.

Bruce Bueno de Mesquita of NYU and Stanford University’s Hoover Institution talks about the incentives facing dictators and democratic leaders. Both have to face competition from rivals. Both try to please their constituents and cronies to stay in power. He applies his insights to foreign aid, the Middle East, Venezuela, the potential for China’s evolution to a more democratic system, and Cuba. Along the way, he explains why true democracy is more than just elections–it depends crucially on freedom of assembly and freedom of the press….

Podcast Archive on Public Choice. EconTalk

A Little History: Primary Sources and References

Bad outcomes happen when government listens to lobbyists representing producers! “A Negative Railroad”, by Frédéric Bastiat. Chapter 17 in Economic Sophisms

I find a remarkable illustration of this in a Bordeaux newspaper.

M. Simiot raises the following question:

Should there be a break in the tracks at Bordeaux on the railroad from Paris to Spain?

He answers the question in the affirmative and offers a number of reasons, of which I propose to examine only this:

There should be a break in the railroad from Paris to Bayonne at Bordeaux; for, if goods and passengers are forced to stop at that city, this will be profitable for boatmen, porters, owners of hotels, etc….

James M. Buchanan, biography from the Concise Encyclopedia of Economics

James Buchanan is the cofounder, along with Gordon Tullock, of public choice theory. Buchanan entered the University of Chicago’s graduate economics program as a “libertarian socialist.”…

Advanced Resources

Schools of Thought in Classical Liberalism: Public Choice, at LearnLiberty

“Rent-Seek and You Will Find,” by Michael Munger on Econlib, July 3, 2006.

“I don’t know if we should stay in this business.” That city official was just being honest, but his framing of the problem surprised me. The “business” he was referring to was writing and winning grants from the Department of Housing and Urban Development (HUD), the federal agency charged with improving home ownership and low-income housing availability. Fifteen years ago, when I had this conversation, I didn’t understand what he meant….

See also the related podcastEconTalk podcast episode.

Related Topics

Roles of Government

Barriers to Trade

Decision Making and Cost-Benefit Analysis

Market Failures