On Public Policies and Microeconomic Regulation

Ronald Reagan, the 40th President of the United States, said in 1986: “Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidise it.“ Is Ronald Reagan’s above description of how governments view the economy accurate? Are governments always the evil institutions that interfere with the markets by excessive taxation and bureaucratic regulation, or can government policies actually improve economic outcomes and people’s wellbeing? Professor Stephen King discussed his views on the optimal design of microeconomic policies and regulation in an interview with Dr Jan Libich conducted on May 21, 2014 at La Trobe University. Prof King is well equipped to provide insights into public policy due to his unique blend of experience: as author of influential academic research and a popular textbook, as Dean of Business and Economics at Monash University, and as Commissioner of the Australian Competition and Consumer Commission (ACCC). He has also served as expert witness in numerous inquiries by public agencies (such as the Senate, Australian Federal Court and Australian Competition Tribunal), and advised many private business on competition matters. IDENTIFYING KEY ISSUES AND SUMMARIZING THE BIG PICTURE 1) Watch the interview at http://youtu.be/40LAb_VxQ6Qu, you can put the subtitles on if you need to. Summarise it in about 5 sentences (Note: being able to produce such summaries is valuable in the workplace). CONNECTING ECONOMIC THEORY TO POLICY 2) Why does a ‘natural monopoly’ occur? Why and how should policymakers deal with it in your view? 3) What are the possible approaches of the government towards ownership and regulation of utilities such as electricity, gas, and road networks? What is Prof King’s view on which approach is the most efficient? What is your view? Use data or examples from the internet to support your answer. 4) Is Prof King an advocate of the ‘no surcharge’ policy on credit cards? Outline his argument and attempt to apply relevant economic theory if you can. Then go to www.accc.gov.au/business/pricing/displayingprices and express your views on the current regulation of credit card surcharges as outlined there (Note: you do not need to read the whole page, just search for ‘credit card surcharge’). CRITICAL THINKING & REFLECTION 5) Write down one idea discussed in the interview that you found new or interesting, or that you disagree with, and explain why. 6) Write down three good questions about any of the topics covered in the interview that you would ask Prof King if you had the chance