“Government should not interfere in the working of the market mechanism i.e. invisible hand of the market.”  Do you agree?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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I agree with this statement, but only to a degree. A government that does not interfere in the market at all is likely to be just as bad as a government that interferes too much.

If government interferes excessively in a market, the market can end up being very inefficient and it will not grow as much as it should.  There are many European countries that end up having problems like these. For example, the link below shows how Spain’s economy is harmed by its excessively intrusive laws about employment. It has passed laws that make it very hard to lay off unneeded employees and very expensive to hire new employees.  This has helped create terrible unemployment among young Spaniards. When government interferes too much, economies can be hurt.  The government should generally leave the market alone because the invisible hand is usually wiser than political leaders (or any other individuals).

However, a government that stays completely out of the market is bad too.  With no government regulation, it is very likely that pollution would be much worse than it is because companies would have very little incentive to avoid polluting. Consumers do not see whether a company pollutes and would have a hard time punishing companies that did pollute. With no government regulation, it is likely that many businesses would be willing to cut corners on things like worker safety in order to lower their costs of production. Businesses have much more power in the free market than workers, so a market with no government interference would probably result in really poor working conditions, particularly for workers with few skills.   In short, a market where the government did not interfere might have higher rates of economic growth, but it would most likely also have lower quality of life for many of its people.

For these reasons, my own view is that some government regulation is needed, but we also need to make sure that it does not become excessive.

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