1 Question of Economics of developing countries
1. Studies have revealed that infant and early childhood health and nutrition have lifelong effects on the physical and mental development of the children. If the benefits are measured by the earnings of the children when they become adults, and the costs are measured by the cost of the doctors’ and nurses’ visits and the cost of a nutritious diet, studies have revealed that the benefits are at least three times the costs. Assume this information is correct.
Now consider a proposal to have the government launch a program to provide health care and nutrition advice to all parents of newborn children for the first three years of the child’s life. Consider three options for this program:
a. the program is free for all parents and is compulsory; parents who fail to bring their children to the clinics for doctors’ visits will be fined.
b. the program is free for all parents and is entirely voluntary.
c. the government does not actually provide the doctors’ visits and the nutrition advice, but provides information to all parents of newborn children of the benefits of early childhood health and nutrition.
Which of these three options do you favor, and why? Provide some reasons for your preference. It is clear that any expenditure of government resources will require tax revenues to pay for the expenditure. What would justify, in your considered opinion, the collection of tax revenues and possibly mandating parental behavior to achieve childhood health and nutrition? We have discussed six possible justifications for government action to replace the free market. Which of these justifications will you be using to support your proposed course of action. (Understand: the free-market approach is to leave the decisions entirely up to the parents, with no government action at all.)
We can identify four views of the proper role of government in a market economy.
1. Libertarian view. The government should establish law and order to protect private property rights and to enforce contracts. The government needs to collect taxes to fund judges and courts, the police, and the military to defend against foreign enemies. In all other matters, the government should let the free market work.
2. Conservative view. The government needs to provide physical infrastructure such as roads, bridges, ports, and water supply. It also should impose taxes or regulations on pollution and it should have an anti-trust agency to regulate or break up monopolies. There may be other tasks for the government to perform, but the government should be limited so that taxes may be kept low.
3. Liberal view. In addition to the tasks that the Conservative View supports, the government should do more to improve income distribution and to correct some of the human failures in decision-making (nanny state). We need a social security system that collects taxes from the working population and provides retirement pensions and disability insurance for everyone. Tax revenues should be used to support free education up through high school at least and to make health care available (possibly with some co-payments) to all.
4. Welfare State view. The government should go beyond the tasks listed under the Liberal view. There should be free health care for all and free, high-quality pre-school and child care, and perhaps free university education at public universities. Note that the Welfare State is compatible with a private enterprise economy for most goods and services.
The ratio of taxes/GDP (or Govt spending/GDP) associated with each view might be as follows:
Libertarian (5%) Conservative (15%) Liberal (30%) Welfare State (45%)