25. Entitlement programs, such as Social Security, Medicare, and Medicaid, will become an increasing portion of federal government spending.

25. The future of entitlement programs, such as Social Security, Medicare, and Medicaid, will be important, controversial economic issues in our lifetimes. An entitlement program is a government program that provides benefits to a group that meets established criteria. Social Security is the federal government entitlement program designed to ensure that elderly and disabled Americans and their dependents have enough income to buy the necessities of life. Medicare is the federal government entitlement program that pays medical bills for elderly Americans. Medicaid is the federal government entitlement program that pays medical bills for low-income Americans.

The retirement of the baby boom generation may have a substantial effect on the U.S. economy. There was a significant increase in the number of births in North America from 1946 to 1964. People born in 1946 will reach age 65 in 2011. As baby-boomers retire, there will be a significant decrease in the number of people paying into the system (through payroll taxes) and a significant increase in the number of people collecting entitlement program benefits. This will require either an increase in revenues, a reduction in social benefits, or further increases in the public debt, which pass these obligations to future generations. This topic is further discussed in module 10 (Fiscal Policy).

23. The U.S. political system is biased toward fiscal irresponsibility.

23. The U.S. political system is biased toward fiscal irresponsibility. Voters tend to prefer politicians who promise to cut taxes and increase government spending. Increased government expenditures without additional revenues increase the public debt, however. The public debt is discussed in greater detail in module 10 (Fiscal Policy).

22. Fiscal policy has a large political bias because politicians are reluctant to increase taxes or cut spending on constituents.

22. Fiscal policy has a large political bias because politicians are reluctant to increase taxes or cut spending on constituents. If the economy needs a stimulus, fiscal policy is a popular political choice. Most people like politicians who cut taxes and increase the benefits provided to them by additional government spending. Yet it is very difficult to use fiscal policy when the economy needs dampening. People tend to dislike politicians who raise their taxes or reduce the benefits provided to them by government. In 2005, for example, the U.S. Department of Defense attempted to save U.S. taxpayers millions of dollars in annual expenditures when they announced plans to decommission the U.S.S. John F. Kennedy, an aircraft carrier based at the Mayport Naval Station near Jacksonville, Florida. Because the carrier provided benefits to the region, such as employment opportunities for workers and increased incomes for area businesses, Florida politicians, including conservatives who profess to favor smaller government, fought to prevent this reduction in government expenditures. Fiscal policy is discussed in module 10.

21. Fiscal policy is taxation and government spending.

21. Fiscal policy is taxation and government spending. Expansionary fiscal policy occurs when the government increases government purchases of goods and services or decreases taxes. Increased government purchases increase overall spending directly. Lower taxes encourage more consumption and investment spending by leaving households and businesses with more disposable income. Disposable income is the amount of income a person has after the payment of taxes. For example, a typical pay stub states the amount of money earned and the amounts deducted for income and social insurance (FICA ) taxes. The remaining income, as represented by the amount of the paycheck, is disposable income. Contractionary fiscal policy occurs when the government decreases government purchases of goods and services or increases taxes. Decreased government purchases decrease overall spending directly. Higher taxes discourage consumption and investment spending by leaving households and businesses with less disposable income. Fiscal policy is explained in greater detail in module 10.

4. Economists do not have the solutions to all the world's problems. However, economists point out that many of our economic and social policies are p

04. Economists do not have the solutions to all the world's problems. However, economists point out that many of our economic and social policies are poor choices. Herbert Stein, an economist who spent almost fifty years working in Washington, D.C., expressed this point in the preface to one of his books : “Economists do not know very much... Other people, including the politicians who make economic policy, know even less about economics than economists do.”

Stein, Herbert. Washington Bedtime Stories: The Politics of Money and Jobs. New York: The Free Press, 1986, p. xi.

2. Correlation does not imply causation.

2. Correlation does not imply causation. If two variables move together, it may not be the case that one variable caused the other variable to change. This is a common mistake in all areas of research, not just economics.

A Latin phrase expresses a similar concept. Post hoc, ergo procter hoc translates as "it happened after, so it was caused by".

An extreme example to illustrate this point involves the sunrise. If a person wakes up before sunrise every day for many years, it does not imply that if the person oversleeps, then the sun will not come up. The person arising does not cause the sun to rise.

Similarly, just because a person is a country leader when the economy does especially well or poorly, it does not imply the leader is responsible for the economic performance. The leader indeed may influence the economy. The correlation does not imply it, however. One needs to look closely at the actions of leaders to determine how much credit and blame they deserve.

Politicians, such as the President of the United States, probably receive more credit and blame than is justified for economic events that occur during their years of service.

Political publicists, sometimes called spin doctors, use favorable correlations to trumpet the great value of their candidates while ignoring correlations that put their candidates in an unfavorable light.