Negative Impact of Government Intervention in the Economy Term Paper

Introduction

The question of to which extent the government should be able to interfere with the market is always relevant to the United States and the whole world. Opinions on this matter differ significantly, each of them being based not only on the market’s abilities but on the nature of people as well. For example, Ivan Pongracic argues that people cannot be fully trusted to act selflessly, especially if they possess great power.¹ Thus, a governmental institution, which consists of people in power, should not be able to make all decisions for the rest of society. However, some government actions are found permissible by scholars, who review the necessity of welfare. This paper looks at the instances of government intervention as well as people’s needs and control measures for preventing bad policy.

Government Intervention Conditions

Scholars have debated the level of government intervention in the market since the early ages of capitalism. According to von Mises, in a perfect world, the government would protect the borders and act as a channel for international communications, leaving all other decisions to the people.² Thus, this point of view does not see any benefit in government intervention in the market. However, there exist some instances where the government may be helpful to the market. During a crisis, the government can provide some stability, reducing the risk of market failure.³ Moreover, antimonopoly laws have the ability to fight against inequality and promote fairness.

Public Goods

The provision of public goods depends on the government because it is difficult for the market to see the fiscal incentive in these services and items. As most of these goods are free for people to use, the profit that could be gained from maintaining access to them is insufficient for private organizations.⁴ Therefore, there exists a risk of the market disengaging with the public good, which leads to people not having an essential part of their lives. Nevertheless, it is challenging to understand how much of each public good people need. There exist several calculations (such as the Samuelson condition) that help the government to approach this issue while maximizing social benefit and reducing cost.⁵

Control

As noted above, the government is an entity that is guided by people who possess their personal needs and goals. Therefore, it is vital to acknowledge that the absolute power of the government is detrimental to the public good. The theory of public choice explains that rent-seeking behavior arises from such an imbalance in people’s interests.⁶ This can be combated with transparency – the government should be held accountable for all transactions and reveals the costs of each public good or other types of intervention. According to Lee, the concealment of such operations is the way the government can obscure its use of the public’s money, thus raising the risk of power abuse.⁷ Accountability and people’s legal control over the government are the two ways that may suppress unjust behavior.

Conclusion

To sum up, the intervention of the government into the market is a complex subject that has many potential benefits and risks. The government’s activities should serve its citizens and care about the goods that do not provide a clear financial incentive to the corporate world. Furthermore, the times of crisis require the state to support failing businesses and industries for the future of the country. It is essential to keep the government accountable for its decisions, ensuring that transparency lies at the basis of all processes.

Bibliography

Floetotto, Max, Michael Kirker, and Johannes Stroebel. “Government Intervention in the Housing Market: Who Wins, Who Loses?” Journal of Monetary Economics 80 (2016): 106-123.

Lee, Dwight R. “Costs Should Be Revealed, Not Concealed.”Foundation for Economic Education, 1999. Web.

Morgan, John, and Justin Tumlinson. “Corporate Provision of Public Goods.” Management Science 65, no. 10 (2019): 4489-4504.

“Public Choice Economics with Ivan Pongracic.” YouTube video, 1:19:44. Posted by Foundation for Economic Education. 2011.

Von Mises, Ludwig. Economic Policy: Thoughts for Today and Tomorrow. 3^rd ed. Auburn: Ludwig von Mises Institute, 2006.

Footnotes

1. “Public Choice Economics with Ivan Pongracic,” YouTube video, 1:19:44, posted by Foundation for Economic Education. 2011. Web.
2. Ludwig von Mises, Economic Policy: Thoughts for Today and Tomorrow, 3^rd ed. (Auburn: Ludwig von Mises Institute, 2006), ix.
3. Max Floetotto, Michael Kirker, and Johannes Stroebel, “Government Intervention in the Housing Market: Who Wins, Who Loses?” Journal of Monetary Economics 80 (2016): 107.
4. John Morgan and Justin Tumlinson, “Corporate Provision of Public Goods,” Management Science 65, no. 10 (2019): 4491.
5. Morgan and Tumlinson, 4496.
6. “Public Choice Economics.”
7. Dwight R. Lee, “Costs Should Be Revealed, Not Concealed,” Foundation for Economic Education, 1999. Web.