EXERCISE 4. Prepare short reports on the following topics. The reports are to be translated in the class

· Economic ideas of Karl Marx.

· Economic ideas of Thomas Malthus.

· The Soviet economy: looking back from the 21^st century.

· Socialism in different nations of the world.

· The less-developed countries.

· Economy of present-day Russia.

14. SOME CURRENT ECONOMIC PROBLEMS

Urban Problems

America's Shifting Population. If you lived in the United States before World War I (1914-1918), you would probably have lived on a farm or in arural community. A rural community is defined as one with fewer than 2,500 residents that is not near any urban community.

Today about three-quarters of our population lives inurban communities. The Census Bureau defines an urban commu­nity as one with 50,000 or more people living in a central city and its surrounding suburbs.

Increasing industrialization of the United States in the years allowing World War I favored the growth of cities. Some of the more important advantages offered by the cities at that time were:

· Low transportation costs. Until the 1950's the principal form of transportation within the United States was the railroad. Business developed close to railroad terminals to reduce transportation costs and speed shipments. Meanwhile, the concentration of firms within the rela­tively small area of a city further reduced travel time among firms and made it convenient for those living in cities to commute to work.

· Better communication facilities. For many years the telegraph and then the telephone were the principal means of communication over long distances. These facilities were always better in cities than they were elsewhere. Locally, too, cities offered ease of communication between firms and their suppliers, customers, and banking services.

· Better services. Hospitals, theaters, schools, department stores, and the like are costly to build and maintain. Consequently, the best will be found where there are large numbers of customers for these services.

But technological change brought each of these advantages to an end:

· The automobile and truck. By replacing the railroad as the principal form of transportation, the automobile and truck eliminated a major advantage of the central city over the outlying suburbs. Business firms were no longer locked into fixed tracks and railroad timetables. In fact, trucking could operate more efficiently outside the cities where traffic was lighter and parking was not a problem. This change, coupled with the completion of the inter­state highway system in the 1960's, removed most of the advantages of being located near a railroad terminal.

· New production methods. Modern technology favors production and assembly of goods on a single floor. Because of the high cost of land, city factories and offices were typically located in multi-storied buildings. Suburban land, however, was far less expensive than that in the central cities. This made it economically feasible to build the more efficient one-story factories that now dot the suburban landscape.

· Improvements in communications. Improved telephone service, along with developments in computer technology and other electronic facilities, eliminated the advantages that the cities once offered in electronic communications.

· Personal services. Hospitals, theaters, shopping centers, and recreational facilities, which were once found exclu­sively in the cities, have followed the movement of the people to the suburbs. Automobiles and the construc­tion of high-speed freeways enabled people from distant communities to support these personal services.

Suburban Flight and Urban Blight. When businesses moved to the suburbs, so did large numbers of middle- and upper-income families. Their places in the cities were taken by former agricultural workers who had lost their jobs to the technolog­ical revolution that increased farm productivity. The old cities also attracted, as they always had, the newest immigrants to America.

One result of these population changes was that those groups best able to pay city taxes (the business community and the middle class) were leaving, while those least able (former agricultural workers and immigrants) were moving in.

The cities were facing a two-fold problem:

· The value of theirtax base (the property and people upon whom they could levy taxes) was shrinking; while

· Those who were moving in needed more help in the way of housing, health care, human services and financial support.

Many of those who moved to the suburbs continued to earn their living in the city. Each morning, the roads, trains and buses are filled to capacity as millions of commuters make their way from the suburbs to the city. There they earn their liveli­hoods until five o'clock, when the mass exodus takes the commuters home.

The influx of commuters puts additional burdens on the cities. which must provide a variety of services, such as police, fire, sanitation and hospitals. In many instances, however, the commuters pay little or nothing toward the support of the cities because their taxes go to their local communities.

The Problems of Urban Finance. City funds come from local taxes and other money provided by the state and federal government. For that reason the mayors of many of the large cities have to make periodic pilgrimages to their state capitals and Washington in search of funds.

The revenue most cities can raise through taxes is quite limited. Those families best able to afford taxes can avoid paying them to the cities by moving to the suburbs, and businesses can also relocate.

Cities, therefore, often try to adjust their taxes to differing elasticities of supply and demand. That is, they set high tax rates on those businesses that cannot easily relocate, and tax those that can at very low rates. For example, to attract new business a city may offer tax exemptions to firms that move to its area. These exemptions often extend for a period of five years or more. Meanwhile, older, established businesses are expected to continue to pay the prevailing tax rates.

The Problem of Housing in the Cities. Since the end of World War II, housing for the poor in the cities has deteriorated. Although most reasons for this deterioration are beyond the scope of this book, a number of them are directly related to economics.

· Supply, demand and the housing shortage. Movement of the rural poor into the cities increased the need for housing but did nothing to increase the available supply. Consequently, the price of housing for the poor increased. But because they were poor, most families could not afford the higher rents. Therefore, landlords subdivided their apartments, increasing the occupancy rate and their profits. As a result, in many instances the poor were paying higher rents (on the basis of floor space) than the middle class.

· Externalities, housing and other urban problems.We discussed earlier that one weakness of the market system is that it fails to account for the side effects of some economic activities. While certain of these side effects may be beneficial (as when a new office building includes an atrium or plaza that can be enjoyed by the public), others may be harmful (as the loss of urban housing when apartments are torn down to build the office). The problem is that the costs of harmful externalities, such as finding new places to live, must often be paid by those who did not create them and are least able to afford them.

Externalities have contributed to the deterioration of the central cities. For example, many landlords have found it more profitable to abandon their buildings and use the loss as a tax write-off than to maintain them. But the presence of abandoned buildings in the middle of the poorest neighborhoods becomes an attraction to drug addicts, criminals and vandals.

As the number of abandoned and often burned-out buildings increases, those who can afford to do so leave the area, additional landlords abandon their buildings, the crime rate increases, and the externalities increase their harmful toll.

Protecting The Environment

Although economic growth offers the promise of a more abundant future,it also imposes a price. That price comes in the form of the resources that must be consumed and the wastes that may be left behind. Increasingly, in recent years, scientists and social scientists have expressed concern about the depletion of the Earth's resources and the pollution of its environment. The prominent English economist Barbara Ward imaginatively stated the problem in 1966 in Spaceship Earth:

"The most rational way of considering the whole human race today is to see it as the ship's crewof a single spaceship on which all of us … are making our pilgrimage through infinity … This space voyage is totally precarious. We depend upon a little envelope of soil and a rather larger envelope of atmosphere for life itself. And both can be contaminated or destroyed."

Can we have continued economic growth while at the sametime preserving our environment and our resources?

For much of America's history the country's population wasso small and its area so vast that there seemed to belittle need to worry about polluting the waters or ruining the land. If the soil in one place were to become infertile or the waters polluted, the solution was simply to move on.

By the mid-twentieth century, however, that was no longerpossible. The air over urban and industrial centers hadbecomefoul and the waters filthy, but moving on was no longer practical.

Nor would free market forces bring pollution to an end. As we noted earlier, pollution is an externality. The costs of cleaning up the damage caused by pollution do not naturally fall on those who cause it. Though many companies acting as good citizens make efforts to protect the environment, there is little economic incentive for them to do so.

It has therefore fallen to government to do what it can to protect the environment. Starting in the 1960's a series of laws was enacted that has done much to protect our fragile environment. For example, in 1988 government spent $15 billion and busi­ness an estimated $60 billion meeting standards set by these laws. Although opinions differ about the effectiveness of government intervention, most people would agree that as a result millions of tons of pollutants did not become airborne, and thousands of fish now swim in waters that at one time would have killed them.

Government efforts to control pollution have taken three forms: direct regulation, effluent fees, and tax credits.

· Direct regulation refers to government rules to protect the environment. The prohibition of burning waste in incinerators, or the dumping of sewage in a river, and the banning of a particular pesticide (such as DDT) are examples of this form of pollution control. Those who fail to obey government regulations are subject to fine, imprisonment, or both.

· Effluent fees are charges levied on polluters for discharging waste. For example, a factory that pumps its waste into the atmosphere or a nearby stream will be charged on the basis of the quantity of waste discharged.

· Tax credits enable firms to reduce their taxes in exchange for investing in equipment that will enable them to reduce the amount of pollution they generate.

Air Pollution

Clouds of factory smoke above our cities used to be a sign of growth and prosperity, but we now know that health can be seriously harmed and that property damage by air pollu­tion can cost billions of dollars each year. About 30 percent of today's air pollution comes from factories and electric power plants, and about 50 percent (250,000 tons per day) from car, truck and bus exhaust. Furnaces and waste incinerators add more harmful gases and dust particles to the air.

Costs of Dirty Air. The American Lung Association estimates that people in the U.S. spend about $10 billion each year for health care made necessary by polluted air. Breathing-related diseases include bronchitis, asthma, emphysema and lung cancer. In 1974 the U.S. National Academy of Sciences said that auto pollution was responsible for four to seven million days of illness and four thousand to 15 thousand early deaths each year.

Polluted air dirties our clothing, our buildings and our homes. Does this cost society money? The EPA estimated that pollu­tion causes the average city family to pay up to $57 per year to clean and replace soiled clothes and $20 per year to repair houses and cars. Air pollution, by stunting the growth of plants and trees, also reduces agricultural productivity and adds to the price people must pay for food.

Burning fossil fuel in cars and factories releases pollutants into the air. Then dust and moisture combine in the atmosphere to form acids in clouds, and eventually there is an acid rain­fall or snowfall. The results are deadly. Acid rain kills fish and plants in lakes. It also builds up in the soil and damages crops. It wears away building surfaces. Blown by winds, the acid rain may fall far from the source of pollution. Acid rain caused by pollutants in our country may fall on other coun­tries. In fact, studies indicate that about half the acid rainfall in Canada may originate in the United States.

Transported air pollutants result from emissions of three pollutants: sulfur dioxide, nitrogen oxides, and hydrocarbons. As these pollutants are carried away from their sources, they form a complex "pollutant mix" leading to acid deposition, ozone, and airborne fine particles. These transported air pollutants pose risks to surface waters, forests, crops, materials, visibility and human health.

Pollution costs all of us something. It is true that if there were no pollution controls the products we buy could be cheaper, and consumers would benefit from the lower prices. However, all society would be subsidizing those who caused the pollu­tion by putting up with dirty and harmful air and water.

Water Pollution

Water is considered polluted when it cannot be used for its intended purpose, such as drinking, recreation, farming, or manufacturing. Pesticides and chemical fertilizers used by farmers and home owners pollute streams, rivers, and ground water when they are transported by rain-water runoff. Sewage sludge and detergents add towater pollution near population centers. Strip-mining of coal causes acid to run off into neigh­boring streams and rivers, and acid rain adds to water pollution.

American industry uses enormous amounts of water in manufacturing processes. The wastewater may contain metallic solids, oils, acids, organic solids, or a variety of other pollu­tants. Some factories discharge heated water back into rivers; this is called thermal pollution.

A survey in 1970 revealed that 41 percent of the nation's water supply systems were delivering water ranging from "inferior" to "potentially dangerous." The Water Quality Improvement Act of that year made petroleum companies liable for most clean-up costs in the event of oil spills into the water. It also strengthened restrictions on pesticides in streams and thermal pollution caused by nuclear power plants. Most significantly for business in general, the Water Pollution and Control Act Amendments of 1972 set a national goal to eliminate pollution discharged into water. Both industries and local governments were made responsible for cleaning up. If your town has a sewer system that was built parallel to a river in the 1970's, it was probably built on federal EPA orders with three-fourths paid with federal funds.

Land Pollution

Modern technology produces massive amounts of wastes. Unlike ordinary household and commercial garbage that can be safely disposed of in open pits or other types of dumps, industrial wastes are often toxic. The disposal of these wastes has created thousands of hazardous dump sites all across the United States. Wastes deposited at these sites have contaminated the land, air, and groundwater in the immediate area and threaten the health and well-being of those who live nearby.

In 1980 the Comprehensive Environmental Response, Compen­sation, and Liability Act, or as it is more commonly known, "Superfund," was enacted. Superfund's principal goal was to provide for cleanup at sites where hazardous wastes had been abandoned, or where past disposal practices had contaminated the environment. Administration of the Superfund was put in the hands of the Environmental Protection Agency.

Between 1980 and 1986, the EPA surveyed some 21,000 dump sites for toxic wastes. Hundreds of dangerous dumps have been identified and efforts to render them safe have begun. The size of the cleanup program has also led to an increase in the size of the fund from $1.6 billion in 1980 to a proposed $8.5 billion in 1986.

The Hanford nuclear weapons plant in the state of Washington is an environmental nightmare. Underground tanks have been leaking radioactive plutonium. In addition, some 200 billion gallons of hazardous wastes stored in unlined pits have been seeping into the groundwater. But Hanford is not subject to EPA regulation because it is federally owned, and the Superfund law exempts the federal installations. This was a terrible oversight, according to critics, because some of the nation's most hazardous waste sites are those located at its nuclear weapons plants and military installations.

There are 3,000 toxic sites at 17 nuclear weapons plants and 6,000 hazardous dumps located at 600 military installations around the country. The cost of cleaning up the mess has been estimated as high as $130 billion. Unfortunately, even if the federal government could afford the cost of the cleanup (which it cannot), some areas would have to be permanently removed from public or private use because no one really knows how to clean them up.

Summary

Industrialization following World War I led to a population shift from the farms to the cities. In the period since World War II, however, technological change has deprived the cities of many of the advantages that they once held. This has led to the growth of suburbs and to a number of economic problems for the cities.

Proposals to solve the economic problems of the cities generally call for some combination of federal, state and local approaches to the problems. Other proposals have called for the involvement of the business community, in partnership with government, as a way of solving some of the problems of the cities.

Poverty in the United States is the condition of those persons whose income falls below a minimum figure established by federal statisticians. Approximately 14 percent of the population was living in poverty in 1987, but poverty seems to strike some groups more heavily than others.

Programs to relieve poverty either seek to remove its causes or redistribute income from those who can afford to pay to those who need help.

Rising productivity has enabled farmers to produce more than can be consumed at home or sold abroad. Overproduction has reduced the incomes of many farmers and forced others into bankruptcy.

Government efforts to help the farmer have focused on four strategies: price supports, crop restrictions, direct payments and import quotas. Although many farms have been able to continue operating as a result of these programs, most people would agree that a real solution to the farm problem has yet to be found.

Economic growth is an increase in the nation's real per capita gross national product. Economic growth can take place when the nation's output is pushed up to its capacity or when its capacity to produce is increased.

The principal advantage of economic growth is that it enables the nation to increase living standards. But economic growth also exacts a price in terms of resources consumed and wastes that must be disposed of.

Unfortunately, the market system does not have a way to charge those who cause harmful externalities (such as air and water pollution) for the costs of cleaning them up. For that reason it has been left to government to allocate those costs and find ways to limit the effects of harmful externalities.