Why do politicians disagree on economic issues — isn't there one right answer?
Students work in small groups and are assigned a version of diary excerpts written by a student intern working for a policymaking legislator. Half the groups read a diary that focuses on stability, security, and equity as broad social goals. The other half read a diary that focuses on freedom, efficiency, and growth. Students determine which broad social goals are emphasized in their reading. During a debriefing, students will discuss broad social goals and identify how trade-offs arise when a society pursues competing social goals. Finally, students choose a current social issue and develop a public policy to deal with that issue, identifying the goals they are attempting to achieve and trade-offs that might arise in terms of other worthy goals.
All economic systems strive to achieve a set of broad social goals, including economic efficiency, equity, freedom, growth, security, and stability. How these goals are prioritized—and how successful an economy is at attaining these goals—influences the quality of life for all its citizens. Recent trends—the aging of the population in many nations; remarkable advances in technology; and public-policy discussions about healthcare, retirement, job training, and international trade—have focused attention on broad social goals.
Voters and policymakers must decide how best to achieve these goals, working within the framework of a market economy. Achieving these goals is difficult because—although the goals complement each other in some cases—in many cases there are trade-offs to face. Policies or programs designed to achieve one goal often interfere with achieving another goal or goals. Resolving such conflicts among people who have different opinions about the relative importance of each of these goals as well as different interpretations of what the goals mean is a perennial challenge in every country and in every economic system.
This lesson was originally published in CEE's High School Economics, 3rd Edition , a collection of 28 engaging lessons which employ an active-learning approach that brings economic concepts to life for students. Visit CEE's store for more information about the publication and how to purchase is.
- Name and explain the six broad social goals of an economy.
- Identify the trade-offs among the six social goals when presented a specific economic policy.
- Activity 28.1, one copy per student
- Activity 28.2, one copy for half the students
- Activity 28.3, one copy for half the students
- Activity 28.4, one copy per student
- Six pieces of 8.5-inch × 11-inch paper, each labeled with one of the six broad social goals: economic efficiency, economic equity, economic freedom, economic growth, economic stability, and economic security
- Sticky dots, 36 of one color (four for each group reading Activity 28.2)
- Sticky dots, 36 of a second color (four for each group reading Activity 28.3)
(Note: If you wish to shorten this lesson, distribute Activity 28.2 and Activity 28.3 to be read at home. Half the students receives one reading; the other half receives the other.) Tell students that they will begin a new activity, “Broad Social Goals.” Explain that all nations, regardless of the type of economic system they have, face the same basic economic problem of deciding how to use scarce resources to satisfy the wants of their citizens. Point out that no system can provide all the goods and services that citizens desire. The public policies a nation adopts reflect the importance a nation places on broad social goals, including economic efficiency, equity, freedom, growth, security, and stability. People don’t always agree about which of these goals are most important, partly because people live in different types of economic systems. However, even within a country, there are widespread differences of opinion regarding which broad social goals should take precedence.
Distribute a copy of Activity 28.1 to each student. Review the definitions of each goal and make the following points:
Economic efficiency means an economy is using its limited resources to produce the most goods and services possible to satisfy people’s wants, and is also producing the kinds of goods and services that people want most. To achieve economic efficiency, decisions about the use of resources to produce additional goods and services must be made by analyzing costs and benefits. When additional benefits exceed additional costs, it is efficient to use resources to produce more of a good or service.
Economic equity involves fairness. The manner in which this goal is implemented depends on people’s beliefs about what is right and wrong. Some people judge equity based on providing equal opportunity. Others judge it based on equality of outcomes. Some public policies dealing with equity are programs that redistribute income or wealth. For example, how much should income from one group be taxed to provide more income or goods and services for other groups? Other examples of government programs that deal with equity include income assistance to low-income families, Medicare, Supplemental Nutrition Assistance Program (SNAP), subsidized housing, job training, and unemployment compensation. Other policies, such as government-provided education through high school and anti-discrimination laws, seek to provide equal opportunity.
Economic freedom entails the freedom to choose what to buy and sell, where to work and live, to open and close businesses, etc. Total economic freedom is never possible, because some individual freedoms must be restricted to benefit the general welfare of society. For example, consumers are not free to purchase illegal drugs, nor are producers free to produce and sell them. Taxes also restrict economic freedom, because paying taxes, as required by law, limits individuals’ ability to decide how to spend some portion of their income. Monopolies may be subject to anti-trust laws, restricting their freedom.
Economic growth is a sustained increase in the goods and services an economy produces. In general, for an economy’s standard of living to increase, real gross domestic product (GDP) per capita must increase. To do this, an economy with a stable or growing population must increase the goods and services produced each year. That is possible if the economy is investing in capital goods and the education and training of its workers, and experiencing some level of technological progress. A growing economy can increase a nation’s long-term ability to use resources to achieve other goals, such as economic stability, security, efficiency, and equity.
Economic security focuses on the desire of consumers and producers to be protected against economic risks over which they may have little or no control. These risks include the loss of jobs, the inability to work due to illness or old age, business and bank failures, and other kinds of unexpected social or economic disasters, including wars, earthquakes, droughts, and epidemics. Individuals attempt to provide economic security for themselves and their families by saving and purchasing insurance. Government programs such as Social Security, SNAP, Temporary Assistance for Needy Families, unemployment compensation, subsidized housing, and farm price supports are designed to reduce risks for different groups. National defense programs are a kind of insurance against economic, political, and military risks.
Economic stability consists of three parts: steady economic growth without sudden swings in output and consumption levels; employment stability without dramatic swings in employment levels or the rate of unemployment; and price stability. Price stability is achieved when the general level of prices for goods and services is neither rising nor falling rapidly. Unexpected changes in price levels hurt some groups and help others. For example, inflation is an increase in the average level of prices that hurts those on fixed incomes and those who have loaned money at a fixed interest rate. Inflation helps those who have borrowed money at a fixed interest rate. Price stability improves economic security by allowing both consumers and businesses to plan for the long term. When an economy has high unemployment, valuable resources are wasted and overall levels of production, income, and spending decrease. But if workers live in a country that allows them the freedom to change jobs, some level of unemployment is considered normal and acceptable. Some unemployment always exists, even when the economy is said to be at full employment, because some workers are temporarily unemployed as they change jobs.
- Economic efficiency means an economy is using its limited resources to produce the most goods and services possible to satisfy people’s wants, and is also producing the kinds of goods and services that people want most. To achieve economic efficiency, decisions about the use of resources to produce additional goods and services must be made by analyzing costs and benefits. When additional benefits exceed additional costs, it is efficient to use resources to produce more of a good or service.
Divide the class into groups of two or three students and give each student in half the groups a copy of Activity 28.2 and the remaining students copies of Activity 28.3. Tell students that each handout is a page from a diary of a student intern. Instruct students to read the diary entries and to determine, within their groups, which economic goals are apparently given highest priority by the legislator for whom the student intern works. Tell students to underline passages as they read that indicate priorities and social goals.
As students read the diary pages, post a sign for each of the six broad social goals at the front of the room. Distribute four sticky dots to each group. Make sure groups reading Activity 28.2 receive sticky dots of a different color from those given to the groups reading Activity 28.3.
Remind students that their diary may not describe all of the broad social goals. Allow time for group discussion and instruct a representative from each group to place sticky dots on the goals (two to four of them) that are given highest priority by the legislator described in the diary entries.
Students with Activity 28.2 are likely to put dots on the goals of stability, security, and equity. Students with Activity 28.3 are likely to put dots on the goals of freedom, efficiency, and growth.
Students may not select all of these goals initially. In the next two procedures, discuss only the goals that the students marked with dots.
Ask students who read Activity 28.2 to identify portions of the diary that support the goals they selected. Remind students that the other half of the class did not read this diary, so they need to be specific about what is in the diary.
Security—job security through fewer layoffs (limit); six months’ notice allows families to prepare for income loss; spreading income loss across more workers minimizes the loss to any one family. Stability—requiring reduced hours versus layoffs keeps the unemployment rate lower; spreading the income loss over more workers spreads burdens more evenly across communities. Equity—job loss is shared across all income categories, not just hourly level; all workers bear shorter hours, not just some losing all work hours; limits on executive pay would tighten the income gap between rich and poor.
Students may not choose all of these goals or may choose others. Again, at this time, discuss only the goals students have marked with sticky dots.
Repeat the previous procedure, this time with students who read Activity 28.3. Remind them that the other half of the class did not read this diary, so they need to be specific about what is in the diary.
Freedom—business owners should be free to hire and fire at will; unnecessary regulations prevent companies from freely competing with unregulated rivals;
Efficiency—subsidizing companies making bad choices allows them to compete when the market signals they should leave; subsidizing unprofitable companies allows them to continue making goods in types and quantities consumers do not necessarily want.
Growth—tax cuts and incentives for small business may be important for job creation and economic growth; failing business owners that are subsidized may become complacent and lack the commitment to innovate and change, which are critical to stimulate economic growth.
It is quite likely that students from both groups will put dots on the same social goal—equity, for example. If not, ask students if it is possible that a given broad social goal might be viewed from different perspectives by people with different views on the role of government.
The diary in Activity 28.2 focused more on the equality or equity of outcomes; the diary in Activity 28.3 focused more on the equality or equity of opportunity.
Review each group’s goal selections. Ask students if other goals should be added or if they disagree with some of the goals selected.
Point out that public policies and programs instituted by governments are designed to help achieve one or more of the broad social goals. However, some policies may help societies meet some goals while reducing their ability to meet others. Individuals and societies often make trade-offs when trying to achieve more than one goal, giving up something that promotes one goal to get more of something that promotes another goal. But not everyone agrees on the extent and type of trade-offs that should be made among goals. That makes developing policies and programs challenging and often controversial.
Divide students into small groups and distribute a copy of Activity 28.4 to each student. Instruct the groups to select one (or all, if time permits) of the policies and answer the questions.
Universal healthcare insurance targets equity and security; may conflict with efficiency, employer freedom, and growth.
Indoor smoking laws that improve air quality target efficiency, freedom to enjoy clean air, and security; may conflict with freedom and growth by restricting times/sites in which workers/consumers can engage in an otherwise legal activity.
Tariffs on clothing imports target security of domestic producers; may conflict with efficiency, equity, freedom, growth, and stability.
Requiring motorcycle riders to wear helmets reduces their freedom, but may help to achieve the goal of economic efficiency (by reducing medical costs) and economic equity (taxpayers and consumers with auto and health insurance don’t have to pay so much to cover costs for motorcycle riders who suffer serious head injuries).
Taxes, in general, tend to restrict economic freedom by reducing people’s ability to decide how to spend a portion of their income, but tax revenues may be used to support activities that promote the achievement of many goals. A capital gains tax that is low encourages investment that may lead to growth, but the lower capital gains rate may make the tax system less progressive, hurting equity in outcome.
Limiting the length of time that people may receive unemployment payments is an equity issue as well as an issue of economic security and efficiency. These payments provide some level of security for those who are unable to provide for themselves. It is also an issue of economic freedom for the taxpayers whose tax dollars fund the welfare payments. The payments may also decrease efficiency if the benefits encourage workers not to seek work quickly; however, efficiency may be increased if the payments allow workers the time to seek the best job for their skills as opposed to being forced to take the first job available. The change in time period may also be viewed as targeting economic stability if length of period is increased during a recession and decreased in an expansion.
Placing a tax on soda restricts the freedom of producers and consumers to sell and buy a legal good. If the tax restricts consumption of sugary drinks and leads to reduced obesity, this may improve economic security for workers, and if this improves productivity, it can increase economic growth.
- Providing subsidies for farmers increases security for the farmers and for consumers who see more stable food prices. However, subsidies result in inefficient farms remaining in business and keep food prices artificially low, harming lower-cost farm producers in other countries. Low food prices may be viewed as providing equity for consumers.
- Universal healthcare insurance targets equity and security; may conflict with efficiency, employer freedom, and growth.
Review the key points of the lesson by asking the following questions:
What are the six broad social goals?
Economic efficiency, equity, freedom, growth, security, and stability
Define each of the goals.
Use Activity 28.1 for definitions.
Explain why achieving one goal might interfere with the achievement of another goal, and give an example.
Answers will vary.
Not available at this time.
Policies that reduce the risk of individuals from economic harms such as loss of income due to job loss target the economic goal of
A teacher decides to help his or her students by announcing that on the next test everyone will get an A. Students do not study for the test. This policy could be interpreted as targeting
- economic stability at the expense of economic freedom.
- economic equity at the expense of economic efficiency.
- economic efficiency at the expense of economic freedom.
economic security at the expense of economic stability.
Antitrust laws could be interpreted as targeting
- economic stability at the expense of economic freedom.
- economic equity at the expense of economic efficiency.
- economic efficiency at the expense of economic freedom.
- economic security at the expense of economic stability.
The federal government places a tax on every gallon of gasoline sold in the United States. The revenues from the tax pay for highways. Suppose a senator proposes raising the federal gasoline tax. Discuss the implications of this tax on the economic goals.
Economic efficiency: Students may argue that a tax decreases the amount of gasoline in equilibrium and raises the price consumers pay above the actual cost of production, which is inefficient. Students may argue that the tax may improve efficiency because the burning of gasoline by automobiles imposes an external cost on others, and the increased tax may reduce this external cost.
Economic equity: Students may argue this is a fair tax because the users of roads pay the tax. Students may argue that a gas tax, like a sales tax, may be regressive, and so not equitable.
Economic growth: Students may argue that the tax will make transportation of goods and services more expensive, therefore reducing economic growth in the economy. Students may argue that the higher cost of transportation will be balanced by better highways that reduce transportation costs.
Economic freedom: Students may argue that economic freedom is harmed because producers and consumers of gasoline are not allowed to trade as much as they would like.
Economic security: Students may argue that people who rely on inexpensive automobile transportation may find their security undermined by the tax.
Economic stability: It is not clear that macroeconomic stability (business cycles) will be affected by this tax.
Choose an economic policy currently in the news. Write two short (200-word) letters to the editor. In one, write from the viewpoint of Congressman Libre. In the other, write from the viewpoint of Congresswoman Aequus.
While answers will vary, the viewpoint of Congressman Libre should emphasize that markets are efficient and allow economic freedom, which encourages growth. Congresswoman Aequus’ viewpoint should emphasize equity and security in our economic system as well as advocate monitoring the marketplace for market failures.
Grades 6-8, 9-12
Grades 6-8, 9-12