Case Studies
The Great TVA
 The great Mississippi flood of 1927 left 800,000 homeless as the swelling waters overran levies throughout the Tennessee River and into the Mississippi. Thousands of acres of farmland were damaged, turning Northern Louisiana into an inland sea, A technical solution, the building of dams, could have prevented the flood. In the absence of initiatives from the privates sector, some legislators felt that federal funds ought to be used. But they faced tough opposition on Capitol Hill. Dams not only control floods, but they can be used to generate large amounts of hydro-electric power… and that presented a threat of competition to the private utilities.
In 1933 when Franklin Delano Roosevelt and a new administration, with an activist view of government, came into power, they created the Tennessee Valley Authority… the TVA.
Some thought the government was now going too far. Along with the utilities, others who feared economic loss joined in the opposition. Coal miners feared the TVA’s generation of hydro-electric power would cut into the demand for coal and that thousands of coalminers would lose their jobs.
The TVA argued that flood control was its primary goal and the revenues from energy sales only assisted in financing the dams. The opposition argued that the government had no right being in the power business. Within 5 years some 57 suits were brought against the TVA. Finally, in 1937, the legal issues were resolved. The U.S. District Court upheld the TVA, ruling that the projects were primarily for the improvements of navigation and flood control.
| Comment & Analysis by Richard Gill Even in a private market economy there are goods that virtually require government intervention since private enterprise will not or cannot produce them The TVA project of the 1930s provided what economists call a public good… a good that has to be provided collectively or not at all. I am speaking here of the flood control and navigation improvements made possible by the TVA dam. And the real problem with a public good like this is that it is impossible, or certainly extremely difficult, to charge any private consumer for the benefit he is receiving. |
The Poor and Medicare
 Health care used to be within one’s means. But, in the 1940s, as medical technology advanced and grew more specialized, health care costs began to escalate. In the process, the cost of medical care went beyond the means of most families. The marketplace offered one solution… private insurance coverage under the Blue Cross/Blue Shield Programs. By the end of World War II, half of the US population was protected by some form of hospital insurance.
But many, particularly the aged, the poor and those without jobs, had no coverage at all. In 1946, President Harry S. Truman called for national health insurance to cover all Americans. But his program was opposed by the American Medical Association and didn’t make it through Congress. The AMA believed a national health plan would interfere in the doctor/patient relationship, does not guarantee quality of care, and is a form of rationing. As the costs of medical care grew, more and more favored some kind of government action.
Finally, in 1965, Medicare, an insurance program for those 65 and older, and Medicaid, a joint federal-state health program for the poor, were passed Medicaid covered the health care costs of millions of low income people. But soon after, the cost of Medicaid and Medicare began to rise at an alarming rate The government attempted to to cut back on Medicare and Medicaid throughout the 1970s, but failed. As a result, legislators have shied away from providing the national health insurance system called for by President Truman, even though large numbers of Americans have inadequate access to health care.
| Comment & Analysis by Richard Gill A market economy generally pays people based on how economically productive they are. This is especially harmful to the poor and ill. When a poor person gets seriously ill, his already low productivity suffers a severe blow while, at the same time, his need for support mounts sharply! What the Medicaid Program says, in effect, is that this burden is too great for any individual to bear by himself. The market may have a just appreciation of abilities but it doesn’t have a just appreciation of needs. Society has to step in. This is the primary reason for government subsidized health care for the sick and elderly. |
Proposition 13
 Public officials at all levels of government propose and decide what public goods and services are required or desired. But when expenditures and taxes continued to rise in the late 70s, the citizens of California began to revolt.
Howard Jarvis led a so-called "taxpayer’s revolt" in California. A combination of inflation and housing shortages led to a rapid increase in land values. This in turn resulted in a steadily increasing property tax. Many homeowners felt the burden of local taxes was too much. The revolt began by collecting signatures… over a million of them… more than enough to place Proposition 13 on the statewide ballot. Proposition 13 would limit property taxes to 1%...a 60% roll-back which would wipe out some 7 billion dollars of local government funds At the polls, Proposition 13 easily passed…with 65% of the vote.
Proposition 13 affected local government services as all but essential emergency services or street repairs were reduced.
But for the average taxpayer, Proposition 13 seemed remarkable… getting a break on taxes with little sacrifice on services. Emboldened by his victory, Jarvis was back in 1980 with a new initiative…Proposition 9… which would cut state income taxes by 50%. The opposition, led by California Public Employees Union, focused its TV campaign on fairness.. This time the campaign against Proposition 9 was successful. The tax revolt was put down.
| Comment & Analysis by Richard Gill The "tax revolt," across the nation in the early 1980s, raised the question of whether or not the governments of the country…federal, state, and local…were accurately representing the will of the people. The feeling that government spending was inefficient and getting out of hand was as much a political as an economic statement. It said to bureaucrats and politicians: "You are out of touch with the people you are supposed to be representing. You may want to expand, but we don’t want you to expand."
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