By contrast, other forms of energy production, like solar power, are environmentally friendly and have a positive externality. By taxing production which causes pollution costs and using the subsidy to encourage other forms of energy production, there is a net gain in social welfare. Regulation of monopoly power. In a free market, firms may gain monopoly power; this enables them to set higher prices for consumers. Government regulation of monopoly can lead to lower prices and greater economic efficiency. See: Regulation of monopoly power. See more at: Solutions to declining industries.
In recessions, there is a sharp fall in private sector spending and investment, leading to lower economic growth. If the government also reduce spending at the same time, there is an even bigger fall in economic growth and collapse in confidence. In a deep recession, governments can borrow from the private sector and spend the money to employ unemployed resources. If there is a collapse in the money supply, there may be a role for the Central bank or Government to print money.
Similarly, the government may need to prevent an economic boom and explosion of credit. Keynesian economists argue that the government can positively influence the economy through fiscal policy. Monetarists believe monetary policy can help encourage economic stability, though an independent Central Bank may not be considered government intervention.
More on government intervention in the macro economy. There is no real model of a society run in the absence of government intervention. Even the most extreme libertarian economists would accept there needs to be some state protection of property rights and spending on national defence. The debate comes on the extent of government intervention. This needs to take place in each aspect of government intervention.
The arguments for and against government intervention in macro economic stabilisation are very different to the arguments for and against providing universal health care. It is not satisfactory. Tejvan, In addition to your post I was wondering, Do you think Romney will bailout and encourage his wall street backers like Obama?
Do you believe that Romney will use the governing administration to intervene in the financial system like Obama? Monopolies are created by said government through patents, intellectual property, the corporation entity system, politicians being allowed to be bribed, and many other things. Money is not an object of nature, therefore money must be false, abundant, and free at its source, which is the central bank.
Free Essay: Government Intervention For many nations, it is essential to choose a system of organization that successfully and thoroughly meets the needs of. Government Intervention in Economic Welfare Essay. Words3 Pages. In pure market economy, price has been set by price mechanism where it coordinates.
You cannot create anything that is real or true by using something false like money. Therefore, no matter how you look at the economy, this economy CBE or the central bank economy will be always wrong or false. Since money is false, there cannot be any need for money to run any kind of economy. We should then create moneyless economy MLE , which is the only real economy. MLE can bring heaven on earth, it will eliminate discrimination, poverty, wars, pollution, migration, etc.
Your email address will not be published. Leave this field empty. Skip to content. Hoover Dam built in the s with government funds This is a summary of whether should the government intervene in the economy. Arguments for government intervention Greater equality — redistribute income and wealth to improve equality of opportunity and equality of outcome. For example, governments can subsidise or provide goods with positive externalities.
Macroeconomic intervention. Arguments against government intervention Governments liable to make the wrong decisions — influenced by political pressure groups, they spend on inefficient projects which lead to an inefficient outcome. Personal freedom. Government intervention is taking away individuals decision on how to spend and act. Economic intervention takes some personal freedom away.
The market is most efficient at deciding how and when to produce. Arguments for government intervention to improve equality In a free market, there tends to be inequality in income, wealth and opportunity. Diminishing marginal returns to income. The law of diminishing returns states that as income increases, there is a diminishing marginal utility. For example, your third sports car gives only a small increase in total utility.
Therefore, redistributing income can lead to a net welfare gain for society. Therefore income redistribution can be justified from a utilitarian perspective. In a free market, inequality can be created, not through ability and handwork, but privilege and monopoly power. Without government intervention, firms can exploit monopoly power to pay low wages to workers and charge high prices to consumers. Without government intervention, we are liable to see the growth of monopoly power. Many of these input payment tactics are implemented to lower costs and maximize output for producers.
These policies help the producers, but the consumers feel the draw-backs. The consumers are forced to pay for the policies. In a sense, the way the government is involved in the agricultural sector is a necessity. If these procedures and policies were not in place, the native producers would quickly go bankrupt. If it were dismantled, the goods the producer produces would come at a much higher price to consumers, and yet government spending in the sector would decline.
Of course, through taxes, consumers had already been paying to have lower priced goods. The government not only intervenes in the agricultural sector of the economy, it also intervenes in the business sector. The ways it can do this are innumerable, but some of them are strict safety and health regulations, tariffs, and subsidies and government loans Ringer, In this sense, the government is allowing itself to be manipulated by people who feel others should go along with their ideas.
The use of tariffs is another way that government intervenes in the business sector.
They help inefficient domestic producers by forcing consumers to pay unnecessarily high prices for imported goods. The use of tariffs forces people to pay higher prices for certain goods and thus resulting in less money the consumer has to spend on other goods and services. This results in less employment in the industries that produce such goods and services. The hidden reality is that a job protected by a government tariff is at the expense of a worker in another industry Ringer, Subsidies and government loans are another method of intervention for the government.
How about receiving a customized one? Finally, limited government involvement prevents crises such as inflation, unemployment and depression. Powerful Essays words 5. During such crises the government started to act by implementing policies such as fiscal or monetary to lower inflation and unemployment. The main appeal of government imposed price controls is that they can ensure that citizens can purchase what they need in times of national economic hardship. In an unregulated inefficient market, cartels and other types of organizations can wield monopolistic power, raising entry costs and limiting the development of infrastructure.
In this method, money is taken from efficient producers and workers to keep inefficient producers in business. Consumers pay for this method in the form of high prices.
A country cannot grow if modernization and technological advances cannot be made because of an immobile work-force. Small and big businesses are guilty of inviting government intervention in the free market.
Small businesses ask for less regulation on small business and more regulation on big business. Fair-pricing laws are a way both large and small businesses keep the government involved and hurt the consumer. These laws keep prices high and hurt efficient competitors. Wage-and-price controls are another way government can intervene in the business sector of the economy. High wage levels are a compilation of minimum-wage laws and laws which force employers to negotiate with unions.
By simple laws of supply and demand, if wages are forced up, businesses hire less people, thus increasing the unemployment level. Once again, government intervention has hurt those whom it was designed to protect. To be able to pull this off, the government must provide the producers with help in the form of subsidies in order for the producers to maintain the supply. The negative effects of government intervention in the economic sector outweigh the benefits of policies and methods implemented to help the consumer. These policies are found in both the agricultural and business sectors of the economy.
On the agricultural side, these policies range from price policies to direct payments to input policies. On the business side, the government can intervene by implementing strict safety and health regulations, tariffs, and subsidies and government loans. While all of this policies seem to have beneficial short-term effects, they never have positive long-term effects. So, should the government stay out of the economy and let it be run by the doctrine of laissez-faire, or is government intervention necessary to the survival of the economy?