The information age has revolutionized the competitive environment and led to gut-wrenching corporate change. Instant awareness and accountability now demand the same level of dramatic, structural change in government. Rising demands for a balanced federal budget mark a fundamental shift in taxpayer attitudes toward the public management of economic resources. No longer is government seen as the clear and easy solution to all economic and social problems. Instead, it is sometimes viewed as an unnecessary impediment to lower taxes, lower interest rates, and more growth in a freer and more vibrant economy.1 Like corporate executives who must justify investment decisions to increasingly wary stockholders, public-sector managers often find themselves before restive taxpayers defending basic duties and responsibilities that had long been taken for granted.

This chapter focuses on how national, state, and local governments can pursue wise public policies that have the potential to improve economic performance. Such policies have the capacity to lay a better foundation for economic growth, a healthy environment, and the necessary balance between the private and public sectors. A balanced view is presented that recognizes limitations of public policy without precluding the possibility that well-articulated policy can be immensely helpful. From this perspective, the methodology of managerial economics provides a practical framework for effectively comparing the relative costs and benefits of social programs and public-sector investment decisions. As such, managerial economics can help improve both the efficiency and equity of the public-sector decision-making process.

1 See Mary Anastasia O'Grady, "Should U.S. Taxpayers Subsidize More Bad Government in Argentina?" The Wall Street Journal Online, February 1, 2002 (

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