annenberg media ♪ annenberg media ♪ it was 1927. once again, havoc reigned throughout the mississippi and tennessee valleys. during a great depression, congress created the tva-- a federal project to control the ravages of the great tennessee river. why would anyone object? medical advances have added years to americans' lives. but not everyone can afford medical care's high cost. why shouldn't the government

guarantee a minimum level of health care? in 1978, californians voted for proposition 13 even though it was likely to result in cutbacks of government services. had the government gone too far? not everyone agrees on government's proper role. some feel government has gotten out of hand. others feel we're not doing enough. public goods and responsibility-- how far should we go? we'll examine that question with the help of economic analyst richard gill on this edition of economics usa. i'm david schoumacher.

we can all enjoy the benefits of public services such as museums, schools, and highways, but they have to be paid for. they are, usually in the form of taxes. why must the government provide these services? why can't we rely instead on the free market? it's a controversial question, as we see in the case of private utilities versus the tva.

the great mississippi flood of 1927 left 800,000 homeless. swelling waters overran levees throughout the tennessee river and into the mississippi, turning northern louisiana into an inland sea. secretary of commerce herbert hoover called the flood the greatest peacetime calamity in the history of the country. the disaster was predictable. the mississippi had flooded before. local authorities attempted to provide flood control, but with uneven efforts. the levee system is only as strong as its weakest link. the building of dams could have prevented the flood. some legislators wanted to use federal funds.

but they faced tough opposition on capitol hill. dams not only control floods, but they can be used to generate hydroelectric power. that presented a threat of competition to the private utilities. to justify the expenditure required to build these dams, electricity had to be sold. that would be produced by these hydroelectric units which were to be installed in the dams. that feature disturbed people who opposed tva. they thought that was a function the government ought not to engage in. the private utilities were successful in their opposition until 1933, when a new administration with an activist view of government's role came into power. franklin delano roosevelt created the tennessee valley authority, the tva. william jennings randolph was a member of congress

during the roosevelt administration. the tennessee valley authority was a product of the new deal. it was not doling out money here and there. it was the planning of an area in the united states where there would be a development. hydroelectric power was a part of it. the plan to provide economic development to the appalachian region began with the construction of the norris dam on the clinch river. the tva plan was ambitious. the regional economies could be improved if the waters were made navigible. the tva constructed housing, began a malaria control project, worked on agricultural development, and provided electrical power to this depressed region. some thought the government was going too far. along with the utilities, others who feared economic loss joined in the opposition.

coal miners feared hydroelectric power would reduce the demand for coal. the coal operators of west virginia came to washington, d.c. they were very angry at me because i was an open supporter of the legislation to create the tennessee valley authority. they said this will rob us of hundreds and thousands of jobs if these rivers are turned into productive areas for the power systems that will not stop in the tennessee valley authority but will go into other regions of the united states. they saw it as something to oppose, and they did so vigorously. the tva argued that flood control was its primary goal. 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. 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. but the political issues lingered. tva had harnessed the valley's great flood waters. on the other hand, utility companies continued to claim that the tva was an element of creeping socialism. we asked economic analyst richard gill how economists determine the extent of government involvement in a free-market society. as far back as adam smith in the 18th century, even economists most devoted to the principle of a private market economy have recognized that certain areas

virtually require government intervention. the tva project of the 1930s had many different aspects. it provided what economists call "a public good"-- a good that has to be provided collectively or not at all. i'm speaking of the flood control and navigation improvements made possible by the tva dams. these improvements were in the interests of society, but they would not have been in the interests of private businesses. the benefit of flood and navigation control was spread over the entire region and not limited to a few paying customers. flood control protects thousands of people in the region and thousands more who may move in after the dams are built. whether thousands or millions of people enjoy this benefit,

the cost of providing it is unchanged. the problem with a public good like this is that it's extremely difficult to charge private consumers for benefits they receive. my neighbor decides to pay for flood control, but i do not. there is no way in which i can be excluded from the benefit of his flood control, just as i can't be excluded from the benefits of a nationwide polio vaccine program, or national defense. invasions of flood waters or foreign armies can be handled only in one way-- collectively. public goods provide one clear reason for government intervention in the economy-- a point on which virtually all economists agree. our country has accepted the need for the government to provide public goods like dams, traffic lights, police, national defense.

but that doesn't cover all questions of government involvement in our lives. what are government's responsibilities to people who can't afford necessities like housing, food, or the subject of this investigation, health care? health care costs have risen astronomically over the past few decades. most of us cope with these costs through insurance. but those without medical insurance face being turned away from emergency rooms or being dumped to public hospitals many miles away. low-income people go without adequate medical services and have a shorter life expectancy as a result. health care used to be within one's means. but in the 1940s, health care costs became more expensive as medical technology advanced and grew more specialized. 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, only half the population was protected by hospital insurance. many, particularly the aged, the poor, and the jobless had no coverage at all. in 1946, president harry s. truman called for national health insurance to cover all americans. his program didn't make it through congress. the american medical association blocked its passage. ama president dr. james sammons. the ama's opposition was in great part responsible for helping defeat the truman plan. if this country's doctors had agreed with those plans, they would now be in place. on any proposed national health insurance program, the ama will have the same objections we've had all along.

it interferes in the doctor-patient relationship. it does not guarantee quality of care. it would be incredibly expensive on a national basis. there is no need for it in this country. that question has been debated long and hard. i think the arguments on behalf of a government role are overwhelming. they range from the fact that for a variety of reasons, we have decided in all developed societies that at the time people become ill, we will not require them to pay for the full cost of the services they receive at that very time. as medical care costs grew, more and more favored government action. wilbur cohen, former undersecretary, hew. in 1950, when i was the director of research and statistics for social security,

the federal security administrator asked me for ideas on how to get out of the inactivity we were in. i said instead of covering everybody, why not cover just the aged who were receiving social security? he thought that was a good idea. he asked me to draft the bill. in 1950, 1951, i drafted that bill for him. it was introduced in congress in 1951, 1953, 1955, 1957, 1959, 1960. but in 1959, i persuaded senator john f. kennedy to be for the idea. that's what changed the whole situation. kennedy and johnson in the campaign of 1960 came out for medicare. kennedy appointed me the assistant secretary of hew to get the bill through congress. i spent five years doing that.

finally, in 1965, medicare, an insurance program for those 65 and older, and medicaid, a federal/state health program for the poor, were passed. president lyndon johnson flew to independence, missouri, and in the presence of harry s. truman, signed the bills into law. medicaid covered the health care costs of millions of low-income people. we asked henry aaron if that met our responsibilities to those who couldn't afford medical care. this wouldn't be a problem if all states provided benefits as generous as those in say the upper third or upper half of the distribution. some states provide meager medicaid benefits-- fewer than 10 days a year of hospitalization, severe limits on the number of doctor's visits one can receive-- so that even moderate illnesses may not be fully protected

under the medicaid program. in addition, the population that may be served by the medicaid program in many states is quite narrowly defined. so notwithstanding the fact that medicaid is the federal health program for the poor, millions of poor americans are not covered by any benefits at all. they don't have government protection or private insurance because they're unemployed or because they work in jobs that don't provide such coverage. about 15% to 20% of the american population at the present time has little or no health insurance protection either through private insurance or government programs. in the 1970s, medicare and medicaid costs mounted. as the burdens on state governments increased,

the programs ran into criticism from state governors like ronald reagan. medical, our medicaid program in california, is increasing by 50% a year. in its first 16 months, it was budgeted for $746 million. but $876 million were spent. this program went $130 million in debt in that limited time. that debt must be paid out of this year's budget. we're in trouble in this phase of welfare. in california alone, hastily drawn legislation in this field can bankrupt our state unless we have revisions. the costs of medicare and medicaid continued to rise at an alarming rate. 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. we asked economist richard gill out the economic rationale for government subsidized health care. the fundamental argument for government subsidized health care for the elderly and the poor is that a market economy doesn't distribute income in the way most people consider desirable. a market economy does have its own principle of income distribution. a market economy pays people more the more economically productive they are. this principle probably keeps the productive process running rather smoothly, and this ultimately provides more abundance for all of us. however, many people can get left out in this process-- for instance, people who att both poor and ill. when a poor person gets seriously ill, his already low productivity suffers a severe blow

while his need for support mounts sharply-- often catastrophically-- given today's monumental medical costs. the medicaid program says, in effect, 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 hato step in. there is always some cost to this. when you start redistributing income, you're increasing tax burdens on the economically more productive groups in the economy. medicare and medicaid programs have a tendency to up medical costs generally. as in many economic issues, the question isn't whether, but how much-- a question not infrequently raised during the past decade. [david schoumacher] california-- a land of plenty--

plenty of parks, lavish public schools, and a tradition of providing public services. cafornians enjoy these benefits, but there's a cost for these services. public officials at all levels of government decide what public services are required. but when expenditures and taxes continued to rise in the late '70s, california's citizens asked, how we determine when enough is enough? i'm mad as hell. the people are mad as hell. i'm getting madder than hell every day. howard jarvis led a taxpayer's revolt in california. inflation and housing shortages led to a rapid increase in land values. this resulted in a steadily increasing property tax. many homeowners felt the burden of local taxes was too much. the revolt began by collecting over a million signatures--

enough to place proposition 13 on the statewide ballot. proposition 13 would limit property taxes to 1%-- a 60% rollback which would wipe out $7 billion of local government funds. journalist ron sobel covered the tax revolt for the l.a. times. the inflation of the 197os translated into the unescapable fact that many california homeowners were paying more in property taxes or faced paying more in property taxes than the actual mortgages on their homes. many of these people were older individuals on fixed incomes, who, had this not carried, certainly would have lost their homes. they couldn't meet their tax payments. at the polls, proposition 13 easily passed, with 65% of the vote. and the tax revolt was in the national limelight.

the victory for proposition 13 is the opening battle in a new american revolution. we have a new revolution against the arrogant politicians and insensitive bureaucrats whose philosophy of tax, tax, tax, spend, spend, spend, elect, elect, and elect is bankrupting we the american people, and the time has come to put a stop. how did proposition 13 affect local government services? los angeles city council president, pat russell. we cut our property tax by 2/3-- that was $200 million out of our budget-- just about 20%. we lost about 4,000 employees over the period of the next year.

we cut back on nearly all of our services. the priorities of the city were to maintain police and fire services. that meant that as you got down the line, libraries and parks were severely cut back. tree trimming went out the window, except on emergency street repair... the things that make a difference in your daily life. dire predictions that permeated the campaign by the opponents of prop 13-- they didn't come true. there were not massive employee layoffs. there was enough flexibility in government to handle the direct impact of 13. there was not an immediate crisis in government. the changes were more subtle. the government did not grind to a halt. despite the feeling

that the taxpayers had come out ahead, other consequences surprised some voters. the biggest winners from prop 13-- i think this is very important-- was california business and california agriculture. as i recall, if one was creating a pie chart, you'd say in this chart that about 1/3 of the benefits from 13 went to homeowners. 2/3 went to business and agriculture. one group that did lose, in my opinion, was the renter. jarvis had literally promised renters that savings would be passed on from apartment owners to the renter. and really, that never occurred. but for the average taxpayer, proposition 13 seemed remarkable-- getting a break on taxes

with little sacrifice on services. jarvis was back in 1980 with a new initiative-- proposition 9, which would cut state income taxes by 50%. the opposition, led by the california public employees union, focused its tv campaign on fairness. is it fair that if 9 passes, you get a hugeax break and the average rson getsothing? i didn'trite proposition 9. why t redu the ses tax so everyone benefits equally? as i said, i didn't write proposition 9. you could have fooleme. the campaign against proposn 9 was successful. the tax revolt was put down. what level of public goods is desirable? that depends on your viewpoint. some believe the government's role should be only minimal, filling in gaps left by private enterprise.

others believe the government should play an activist role. but as the citizens of california demonstrated, the public will decide. economist richard gill offers a commentary on how the government's role in the economy is determined. the sharp controversies over propositions 13 and 9 in california suggest that people differ intensely about how deeply the government should inlve itself in the economy. this is understandable since ere issually a difficult tradeoff involved. the more public goods weave, the fewer private gos.able the more we redistribute income to the needy, the greater the disincentives for the productive. but the tax revolt across the nation in thely 1980s raised the question of whether federal, state, and local governments accurately represented tthe people's will

in this matter. the government was pictured by the tax cutters as an independent organism with strong drives of its own-- drives in one direction only-- expansion. 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're out of touch "with the people you're representing. we don't want you to expand." so we have a difficult economic question-- what arehe costs and benefits of government expenditures-- and also the political question-- will the government we're dealing with carry out our wishes in this matter? one needs no crystal bal to predict that the debate will continuon. [david schoumacher] despite the advantages

of the free enterprise system, there are certain goods and services that the market will not provide. it has generally been accepted that the government will provide those services. the government's responsibilities have evolved, however, pushing beyond economic reasons for government involvement into broader social responsibility. how far we should go in this direction depends on the public's perception of needs, of government's effectiveness in serving them, and, of course, our willingness to pay. for economics usa, i'm david schoumacher.

captioning is made possible by the annenberg/cpb project captioning performed by the national captioning institute, inc. captions copyright 1986 educational film center