Stanford University Government Failures in Market Economy Discussion
The role of a government in the market economy is one of the most debated issues in economics. Similarly, one of the most enduring debates on U.S. economic history focuses on the role of government in the economy. Some argue that government regulation of the U.S. economy is too little and too late. On the other hand, there is also a claim that the U.S. economy is no longer a free market due to too many regulations.
Read the Last Word piece, “Government Failure” in the News, in Chapter 5 in your textbook. Investigate the use of special-interest lobbyists and its connection with the government failures. The process of lobbying legislatures is itself becoming a big business. State legislatures are under the same kind of pressure from interest groups as the Senate and the House of Representatives.
- What are the roles of government in the market economy? Based on the current economic conditions, to what extent should the government intervene in the market economy?
- What are the justifications given in favor of more government involvement in the market economy? What are the reasons given in favor of less government involvement in the market economy?
- Provide an example to discuss how special interests can succeed in perpetuating policies that are opposed by the majority of voters because the costs of organizing and motivating groups to take political action increase with group’s size.
Do the discussion then do the response each posted below.
The government plays several roles, some of which include providing legal structure and ensuring the basics services such as health, education, safety and infrastructure. However, according to Samuelson, in the economic market, there are 4 main roles the government plays which are: Increasing efficiency in the market by correcting market failures such as excessive pollution and monopoly, providing integrated infrastructure that would enhance the efficiency of production in the market, promote equity using taxes and spending to redistribute income, and lastly to foster macroeconomic growth and stability to reduce unemployment and inflation in the market (Nipun, n.d.). Economists have argued however, that government intervention has caused more harm than good and as a result, their intervention should be limited (McConnell, 2021). I am of the belief that the government should intervene in the market economy to a certain extent, more of a supervisory role rather than enforce regulations that end hope helping some and harming others.
Economists argue on whether the government should or should not intervene in the market based on how they measure the success of the government. Some economists argue that the government should be involved in the market economy because they promote equality by redistributing income to improve equality of opportunity and outcome, aid in overcoming market failure, reduce unemployment, overcome prolonged recessions and provide disaster reliefs in the case of major health crisis – such as the current pandemic we find ourselves in. On the other hand, other economists argue against government intervention based on how the government can make wrong decisions due to influence by political pressure groups (e.g., special interest groups), they take away individual freedom to spend and act and lastly, the fact that the market is better off deciding on how and when they want to produce (Pettinger, 2020).
A typical example of how special interests can succeed in perpetuating policies that are opposed by majority of voters are by the creation of special interest groups who often go unnoticed by taxpayers (McConnell, 2021). For example, a group that is focused on an environmental law enacted to reduce air pollution that would cost some firms significantly more compared to how much it would cost the average individual and the overall benefits to society. These special interest groups can pressure and influence legislators to enact public policies that do not benefit society because they are usually well organized, focused on specific issues, contribute to campaigns, and even offer employment to legislators after office. (This is one of the reasons why some economists argue vehemently against government intervention in the economy market.
Nipun, S., (n.d.). Role of the Government in a Market Economy. Economics Discussion.https://www.economicsdiscussion.net/government/role-of-the-government-in-a-market-economy-economics/26174
What are the roles of government in the market economy? Based on the current economic conditions, to what extent should the government intervene in the market economy?
A market economy relies on consumers, suppliers, and the government to all play their part correctly and allow the consumerism to flourish. The government in a market economy should “provide the legal ad social framework, maintain competition, provide public goods and services, redistribute income, correct externalities, and stabilize the country” (McConnell, Brue, & Flynn, 2017). Basically, the government should only involve itself to protect those that cannot protect themselves like providing social services, restricting monopolies, and aiding in global pandemics.
Our current economic status feels like uncharted territory for my generation, but economics is cyclical even if the events are different. The government had aided in padding consumer and supplier pockets during the height of the pandemic and should begin taking steps to let society regrow.
What are the justifications given in favor of more government involvement in the market economy? What are the reasons given in favor of less government involvement in the market economy?
A basic argument since the creation of the United States has been how much the government should be involved. Ideally, the government should intervene only when the market fails to provide a desirable outcome (Pettinger, 2019). The text notes a story regarding honeybees and farmers. There is no government incentive for bee farmers, because bee farmers work closely with plant farmers to create their own deals that are mutually beneficial (McConnell, Brue, & Flynn, 2017).
Society requiring more government intervention could stem from issues of disorder or turmoil, global catastrophes, environmental emergencies, and restricting monopolies. These interventions should be aimed at providing equality between consumers and suppliers.
The current political climate has caused extreme unrest and lack of faith in all actors of government, no matter the party. It can be argued that government intervention should slow down or be reduced when there are government failures, when it becomes tyrannical or pressured, and when it stops producing beneficial programs.
Provide an example to discuss how special interests can succeed in perpetuating policies that are opposed by the majority of voters because the costs of organizing and motivating groups to take political action increase with group’s size.
The NRA may be the most popular lobbyist group acting on behalf of “gun owners”. Their agenda may be widely supported in some areas and scarcely supported in others, but they have large financial donors. This financial support is used to support politicians that they prefer and to further their agenda without as much direct press spotlight. It may be difficult for politicians to deny this money during election time or when other large financial items are being discussed. Large lobbyist funding also make it very challenging for their challenger to compete with.
McConnell, C., Brue, S., & Flynn, S. (2017). Economics: Principles, Problems, & Policies (McGraw-Hill Series in Economics). 21st Edition. McGraw-Hill.
The government plays a key role in how the economy functions. It sets laws governing the activities of the economy, provides products and services that otherwise would be under produced, and provides a redistribution of income (McConnell, Brue, & Flynn, 2018). The government should step in when there are imperfections in the market (Feldman, 1971). Feldman (1971) goes on to say that achieving equity is impractical, and so government politics will come into play.
When there is a large need, the government can be justified in having more involvement. Areas such as education and healthcare (here in Canada) are areas that the government gets significantly involved with, creating policies, budgets, and laws to benefit the society. Another area the government is justified in having more involvement is in income equality. According to Stack (1978), the greater the direct government involvement in the economy the less the income inequality.
There are many who say that government bailouts, such as those received by the automobile industry is more about buying votes than it is about helping the economy. The bailouts in 2010 had the government making decisions that went against their economic laws and regulations for bankruptcy, and the factories were thought to be kept open for political reasons (McNulty & Wisner, 2014). Letting things take their natural course rather than having government involvement might be the best solution in some circumstances.
Well informed and highly vocal special interest groups make campaign contributions and press politicians into making decisions that greatly benefit their interest while not being noticed by the larger group of taxpayers (McConnell, Brue, & Flynn, 2018). Public art/Infrastructure art is one area where cities spend a great deal of money, pressured by a small number of loud influencers, and cost the taxpayers. An example of this is a piece of public art in Calgary. The giant blue ring lamp post was installed for almost $500,000, and has had Calgary taxpayers upset since (Klingbell, 2016).