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Public Expenditure

Public Expenditure

Paul Samuelson’s paper on public expenditure is a drag to read for anyone with a background in economics. The concept of utility maximization is surely not a novel one, even in his day, although his application of the concept is rather unique. Samuelson had very little to say about the matter other than the possibility of an aggregate utility maximization of public expenditure consumption. While pretty in theory, any pragmatic use of this model is fantasy at best.

Charles Tiebout takes the matter a little further with more extensive models and analysis. An issue in particular he raises is that the method of solving this problem is flawed. To solve the issue on how to pareto optimize public expenditure, a lot of assumptions need to be made about societies preferences in the public goods market, meaning all goods provided by government in this case rather than just goods that do not diminish with more consumers.

Tiebout takes a more reasonable approach to the issue of efficient public expenditure. He counters Sameulson’s belief that all expenditures are made at the central government level and therefore must adjust to consumer preferences. Tiebout’s claim is that most expenditures are made at the local government level and that their levels of expenditure is more or less static. This would leave room for consumers to migrate to municipalities which suit their preferences, assuming that municipalities differ in what they spend tax revenue on. This case, while more believable, is still flawed in the assumption that people migrate solely on the factor of government expenditure preferences. This assumption may be valid when people are migrating at short distances, however may break down for long distance migrations. If looked at within a limited distance, this would also be detrimental to assuming an infinite amount of communities to choose from. Which would pose the possibility for huge inefficiencies. After all, a municipality could be a better suited for a man’s preferences if all the others are not as good. This alone would not ensure that said community would fit his preferences exactly or even get close to his preferences, just so long as it is better than the other communities, our man would move there.

These papers seem to be textbook examples of the flaws of Economics as a science. Generalized assumptions such as the ones Tiebout and Samuelson make may not even be close to what it is like in the real world. Another flaw stems from that of utility maximizing itself. As a qualitative measure, it is extremely difficult to express in quantitative terms, but is used so all too frequently regardless. An immeasurable object coupled with unrealistic assumptions is not the path to a better world, just to that of a utopic fantasy.

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