What are positives and negatives of the federal government involvement in our economic system?
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In answering this, we must first recognize that not everyone will agree on the answer to this question. Conservatives will tend to argue that there are few or no benefits to government involvement. Liberals will argue that there are more positives and fewer negatives. Let us look at the most commonly given positives and negatives while realizing that not everyone will agree with these characterizations.
One commonly cited positive about government involvement is that it can cure what economists call “market failures.” For example, if companies pollute the air and the water, there is nothing in the market system to stop them. If the government gets involved in regulating the economy, they can be prevented from polluting. This puts an end to this market failure.
A second commonly cited positive is that government involvement keeps the economy going on more of an even keel and prevents us from experiencing really deep recessions. The idea here is that laissez-faire government was what allowed the Great Depression to get to be so bad. Nowadays, because the government gets involved, things do not get to be that bad. From this point of view, the recent “Great Recession” did not become an outright economic disaster because the federal government took action to stimulate the economy. If the government did not typically get involved, we would be subject to many more major fluctuations in our economy.
On the other hand, government intervention is said to make it harder for our economy to grow rapidly. The government does things like placing regulations on companies that make it harder for them to grow. An example of this would be the obstructions that are placed in the way of companies that want to make nuclear power plants or that want to mine for coal.
In addition, intervention is said to create incentives for people not to work as much or as hard. An example of this is the idea that unemployment compensation makes it easier for people not to work. By helping allow people to get by without working, government intervention reduces the amount of resources (in this case, labor) available to our economy.
What we have, then, is competing claims about the effects of government intervention. Government intervention can a good thing because it ends market failures and prevents huge swings in the economy. On the other hand, it can be a bad thing because it can reduce growth.
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