 Governments have played a key role in the origin of capitalism and in the ongoing operation of capitalism. So in this lecture I'm going to consider the role of government and the size of government in our economy. Over time the size and the roles of government have expanded as capitalism has evolved. Here are three measures of the government's contribution to the economy. First is called government production of goods and services. This is such things as education, police, the things actually produced by government employees. The second is called government consumption and investment. This adds to government production the value of goods and services that are purchased by the government from the private sector. That includes, for example, the weapons that the government purchases, the battleships, the aircraft carriers. Third measure of the government contribution is called government expenditure or spending. This adds to government consumption and investment the transfer payments that the government makes to people. For example, social security retirement pensions. These measures give you different results about how big the government is relative to the economy. So the usual measure of the size of the economy is gross domestic product, GDP. That is the value of all goods and services produced during the year. Government production, the first of these, is the part of GDP produced, actually produced by the government. Government consumption and investment can be thought of as the part of GDP that government causes to be produced, either by producing itself or by buying it from the private sector. The broadest category of government expenditure or spending is not directly comparable to GDP because it involves this large element of transfer payments that do not involve producing anything. Here are some numbers. This is government production as a percentage of GDP. It was only 11.6% in 2017 for total government and most of it, as you can see, was state and local government. That's who does most of the production, particularly education and policing. 8% of GDP comes from state and local production and only 3.6% from federal government production. This shows the broadest category, government expenditure or spending as a percentage of GDP, and that's how you get the big percentage. For total government, it's 36% of GDP for that year, for 2017, and most of that is federal, which is 23.4% versus 15.5% for state and local. Those of you who are quick at addition may notice that federal, state and local add up to more than the total. That's because part of federal spending consists of transfers to state and local government, which are then counted again in state and local government spending when they spend the money they get. So the totals don't add up for that one. Compared to other countries, government spending relative to GDP is not high in the U.S. Here we see Finland 57%, total government spending relative to GDP, France 56.6%, Japan just under 40%, the U.S. by this measure for that year 37.6%. The U.S. does not have a big government relative to the size of the economy by this measure. In order to pay for government spending, taxes are collected, and this figure shows taxes as a share of GDP for OECD countries, as the Organization for Economic Cooperation and Development, it's an organization of the high income countries. You can see that for some of them it's over 45%, Denmark, France. The U.S. again is not a highly taxed country. It's the red bar 26%, a lot less than most other developed countries. Here are two statements to consider. One, the U.S. has a democratic form of government based on free elections. I think almost everyone would agree with this statement. Two, in the U.S., the government favors the interests of big business and the rich. Many people believe the second statement is true, poses a paradox. How can they both be true? If the government is democratic, then how could the government favor just a minority of the population? In the political economy view, the government in any class-based economic system tends to protect the interests of the dominant class. That is the class that appropriates the surplus. The question, however, is since top government officials are chosen in free elections, how could government mainly serve big business and the rich since they form a small percentage of the electorate? According to the political economy analysis, there are three main mechanisms through which capitalists exercise political power. The capitalist class exercises political power. Money, media and control of investment. The capitalists have a lot more money than anyone else and money tends to translate into political power. The mass media are capitalist institutions that depend on capitalist institutions for advertising revenue. They tend to promote the interests of capitalists. The capitalist control investment, if the government doesn't do things that they favor, the capitalists might invest less and that will cause problems that could lead to elected officials losing election. In other resources and in discussions in this class, these matters will be looked into more deeply. Thank you.