Government Involvement in a Market Economy

“For example, the federal government regulates the quality of food and water, the safety of workplaces and airspaces, and the integrity of the banking and finance system.” (Bianco, Canon 2011, p 582) Regulations find out if the product is a market failure. There are two types of regulations, which are economic and social. “Economic regulations sets prices or conditions on entry of firms into an industry, where as social regulation address issues of quality and safety.” (Bianco, Canon 2011, p 582) Economic regulations are concerned with the price regulation of monopolies.

2. Write a short essay that argues for or against deregulation. Explain why you think regulation helps or hinders economic growth. Give specific examples to support your argument

A specific example of a policy that helped the economic activity was the Recovery Act and Reinvestment Act (ARRA) in 2009. The short-term gain was evident by keeping jobs and corporations afloat as indicated the by 13% increase in GDP. The slope of the GDP growth after the ARRA money started to flow increased (CDN, 2012). The $787 billion dollar bill ultimately comes back to burden the taxpayers and hinders new economic growth. Perhaps, if the government did not bail out the financial institutions, new smaller and more innovative institutions would have emerged. After all, a good market place has many players, which helps the supply and demand reach equilibrium.

The federal government’s role is in regulating industries is to protect consumers and the market. There is an ongoing debate on whether the federal government should regulate the insurance industry as a result of the bailouts stemming from the Financial Crisis of 2008. Currently, state governments regulate the insurance industry. Proponents of federal regulation reason that states are inefficient in the duty of insurance regulation. Additionally, the federal government has economies of scale and may offer an increase in efficiency unlike state regulation. The federal government regulates industries due to inherent systemic risk to the country’s economic environment. Systemic risk is the risk of collapse of an entire financial system or market. (SOURCE) For example, banking institutions such as Lehman Brothers, Merrell Lynch, and Goldman Sachs were major contributors to the financial crisis in 2008 because these institutions were systemically significant to the market. The insurance industry and the core activities of the industry, however, were not a major contributor to near-collapse of the American economy. The federal government should not regulate the insurance industry because it does not possess a systemic risk to the market economy, states have the ability and resources to regulate, and federal regulation would result in unnecessary costs from the federal budget.

What do I think the role of the government is, under a system of regulated capitalism, in our current economic crisis? Regulated capitalism is used to preserve rights and to ensure proper management of justice. When the market stops working, and fails, the government will step in to help, and try to glue things back together. The government isn’t the binding to the book of America. The role of the government is like the resolution of a book, it ties up the loose ends, when we are lost. We don’t always like the resolution, though. The government can’t really guarantee anything, the outcomes are a tossup, but we should be able to trust that our government will do the right thing for our welfare.

One of the natural consequences that comes alongside constant regulation is the concept of deregulation: the lifting of government restrictions on business, industry, and professional activities. Many critics point out that deregulation leads to inflation and can often make bureaucratic actions go against what Congress originally intended. Yet, do you believe there is such as thing as “too much regulation”? Should the bureaucrats mainly be focusing on issues that affect the entire nation? As our society grows more and more advanced every year, do you believe the bureaucracy’s role will continue to grow bigger and more essential to our democracy? Explain your

The economy was one of the most pressing issues in the recent 2016 U.S. presidential campaign, which saw Republican businessman and celebrity Donald Trump closely elected over former Secretary of State and Democratic challenger Hillary Clinton. In many ways, the election can be seen as a backlash and conservative effort against the economic philosophies and policies of the two candidates and their parties, and on which candidate could better spur economic growth. The economy greatly affects all American lives, often without the people’s direct say, but nonetheless influencing how easy it is to get a job, how quickly the prices of goods and services rise and fall in a market system, and how much money people can spend or save for the future.

It also makes the assumption that the market is fragile and if left alone will operate in an inefficient manner. The government or the politicians in this case act as regulators or neutral arbiters. In the public interest view, the politicians regulate the efficient flow of money in banks. Without this, the banking system would be in chaos since the politicians ameliorate market failures in the banking system. In the banking system, the interest of the public is to ensure that the banking system allocated resources in an efficient manner that is by maximizing output and minimizing costs. The role of the politicians in the interest theory is, therefore, to act as neutral arbiters and to ensure that markets operate in an efficient manner without failure.

For this reason policymakers shouldn’t stabilize the economy due to inefficiency and short term descriptive solutions that doesn’t take into account long-term normative impacts as result of these polices. In some cases these policies do more harm than good and even the opposite goals of what the policy was intended for, thus exacerbating the situation at hand. That is why I feel certain economic policy should be left out the government and all economic responsibility should be handled by an independent organization with oversight but with lots flexibility in order to solve these economic issues, for instances the federal reserve handling of the economic crisis of 2008 showed that this could be

The government plays a critical role in a market economy, for it establishes the strategies of providing key services, redistribution, regulation and subdivision. Concerning provision, the government plays the role of providing public goods and services such as national security, which is imperative for a stable economy. Within the American economy for example, the Lorenz curve provided information towards the existence of unequal distribution of income. By carrying out redistribution therefore, the government will be making distribution of income and other important resources less unequal (Gregory et al, 2004). By carrying out regulation within a market economy, the government will be setting grounds for a free and fair market, which is the foundation upon which a stable economy operates. Over and above, I harbor the perception that the government should intervene in a market economic system, for such a strategy guarantees that, the ideal monetary and fiscal policies are in place to prevent the market from fluctuations.

Government regulations may make the market unstable. Regulations implemented by the government may lead to dampened profits, or change the usual operations of the firm.

Why does the government feel the need to intervene in the market place especially when the economy is always so hard to predict? The government intervenes within the market place because they believe they know what is best for our economy. They attempt to address what is inefficient within the market place in order to create a more efficient economy. There are many scenarios of government intervention within the market place. Three great examples of when the government intervened within the market place was the first income tax and Internal Revenue Act in 1862, the Specie Resumption Act during the Panic of 1873, and the Chinese Exclusion Act of 1882.

There is nothing new in the way that government aids business and a market economy. Conservatives would have us believe that our nation began and prospered under a laissez-faire arrangement, until the twentieth century and the advent of the New Deal and big government as we know it. But in fact, there has never been a complete wall between the public and private sectors. Government has always been involved in the economy. Active government support for business and the encouragement of economic growth can be traced back to the very beginnings of our Republic. Consider, for example, section eight in our Constitution – the one that describes the powers given to the newly created Congress. What is striking about most of the powers listed in this section is how mundane they seem. Here are the first eight of those powers:

The government should oversee the economic system by intervening with business that hurt consumers, and drive smaller businesses to the ground. It should provide a fair system where everyone has equal economic opportunity. During the time of the Gilded Age and Progressive Era, which took place during the turn of the twentieth century, the power of the executive branch was ineffective. Business

Researchers (Romer, 1986; Eckaus, 1989; Solow, 1990; Murphy et al., 1989) justified the rationale for government intervention in the context of industrialized nations. The regulations also had frequently been justified in developed economies as a mean of maintaining financial stability (Cheng, 1986).However; the historical evidence did not fully endorse the view that government intervention ultimately delivers faster economic growth. The intervention led to more intervention and soon the financial markets were dominated by government interference in terms of both the direction and price of credit. A prevalent feature of this period was a very slow results from controls on the financial system, and often a negative interest rates on both deposits and loans (Blejer, 1983; Diaz-Alejandro 1985; Hanson and Neal, 1985;Fry, 1990; and Hanson and Rocha,1986).