Essay: Government Intervention And Its Disadvantages
Tags: Government Intervention, laissez-faire
Should our economy be run by a doctrine that was made popular by a group of French writers called physiocrats in the mid-1700s? This doctrine is called laissez-faire and it literally means to let or allow to do(The Family Education Network). It is a theory of economic policy which states that government generally should not interfere with decisions made in an open competitive market. These decisions include policies such as setting prices and wages. According to the doctrine of laissez-faire, workers are most productive and a nation’s economy functions most efficiently when people can pursue their own economic interest freely. The economy of the United States is no where close to being a laissez-faire system. In fact, government spending and intervention in the economic sector has ballooned. According to the Federal Money Retriever, in 1998 alone, the government spent over $37,733,526,000 in agricultural commodities, loans, marketing, and stabilization. The role of government has grown to a point where the benefits of government intervention are far outweighed by the negative effects on the economy as a whole.
One of the major areas in which the government intervenes is in the agricultural sector of the economy. The government has three ways it can intervene and help its producers. These ways include price policies, direct payments, and input policies. Price policies have the largest effect on producers. Tariffs, quotas, and taxes are just a few examples of price policies. While these policies bring revenue into the government, in the end they hurt consumers. Each of these policies raise the prices of both imported and native goods. They are designed to help stabilize prices and give the native producers a chance to compete with foreign goods. Under the doctrine of laissez-faire, the government would not interfere with prices and the native producers would be forced to lower their prices, giving the nation’s citizens a better deal in the market.
The use of taxes is one of the government’s favorite ways to make its presence known in the economy. While this method seems blatantly obvious, many of the ways the government uses the money collected by taxation is not. Some of the money it takes is used to fund other programs designed to “protect” consumers and to “create” jobs. Because of the money taken away from the consumer through taxes, there is less money movement in the economy. This money movement is what creates jobs in the economy. “So, each person’s money lost to taxes helps fail to create their part of a job” (Kaz).
Direct payments are another way in which the government attempts to help its producers. Deficiency payments, diversion payments, disaster payments, and marketing loans are all types of direct payments. Deficiency payments are payments based on the difference between the legislatively set target price and the lower national average market price during a specified time. Diversion payments are payments made to farmers who voluntarily reduce their planted acreage of a program crop and devote the land to a conservation use. Disaster payments are payments made to a producer when a disaster, such as a flood or drought, occurs and the producer’s crop is either destroyed or severely damaged. Marketing loans allow producers to repay nonrecourse loans at less than the announced loan rates whenever the world price or loan repayment rate for the commodity is less than the loan rate(Arthur & Mabbs-Zeno, 2).
There are many different types of input payments implemented by the government. They range from below-market grazing fees and below-cost rural electrification to fertilizer and irrigation subsidies to loan interest rebates. These input policies are designed to give the nation’s native producers an edge by making various commodities more accessible to them. Many of these input payment tactics are implemented to lower costs and maximize output for producers. These policies help the producers, but the consumers feel the draw-backs. The consumers are forced to pay for the policies.
In a sense, the way the government is involved in the agricultural sector is a necessity. If these procedures and policies were not in place, the native producers would quickly go bankrupt. While the people are now forced to “pick up the bill” for these policies, it would be very difficult to completely dismantle the current system. If it were dismantled, the goods the producer produces would come at a much higher price to consumers, and yet government spending in the sector would decline. Of course, through taxes, consumers had already been paying to have lower priced goods.
The government not only intervenes in the agricultural sector of the economy, it also intervenes in the business sector. The ways it can do this are innumerable, but some of them are strict safety and health regulations, tariffs, and subsidies and government loans (Ringer, 149-151). Politicians always try to make everyone “happy.” Because of this, lobbying by special interest groups normally brings about stringent safety and health regulations. In this sense, the government is allowing itself to be manipulated by people who feel others should go along with their ideas.
The use of tariffs is another way that government intervenes in the business sector. They help inefficient domestic producers by forcing consumers to pay unnecessarily high prices for imported goods. The use of tariffs forces people to pay higher prices for certain goods and thus resulting in less money the consumer has to spend on other goods and services. This results in less employment in the industries that produce such goods and services. The hidden reality is that a job protected by a government tariff is at the expense of a worker in another industry(Ringer, 150).
Subsidies and government loans are another method of intervention for the government. In this method, money is taken from efficient producers and workers to keep inefficient producers in business. Consumers pay for this method in the form of high prices. “As Henry Hazlitt has noted, it is important that antiquated, inefficient companies die out so that new, efficient companies can grow faster; i.e., so capital and labor will find their way into more modern industries” (Ringer, 151). A country cannot grow if modernization and technological advances cannot be made because of an immobile work-force.
Small and big businesses are guilty of inviting government intervention in the free market. They continually ask the government to step in and “protect” them. Small businesses ask for less regulation on small business and more regulation on big business. Fair-pricing laws are a way both large and small businesses keep the government involved and hurt the consumer. These laws keep prices high and hurt efficient competitors.
Wage-and-price controls are another way government can intervene in the business sector of the economy. Of course, these controls never fully work It is impossible to put price restrictions on every product and service that exists in an economy. “The result is that producers will produce fewer of those products that are restricted, thus people will have more money available for other products, which in turns will cause the prices of the non-restricted products to rise faster than normal” (Ringer, 167). High wage levels are a compilation of minimum-wage laws and laws which force employers to negotiate with unions. By simple laws of supply and demand, if wages are forced up, businesses hire less people, thus increasing the unemployment level. Once again, government intervention has hurt those whom it was designed to protect.
Price-fixing is a policy designed to help the “poor” and “needy” in the economy. In this policy, the price of a product is “fixed,” or set at a level below the equilibrium point, so as to allow each consumer the ability to afford it. To be able to pull this off, the government must provide the producers with help in the form of subsidies in order for the producers to maintain the supply. This method is very expensive, and there are many cheaper alternative ways to help the “poor.” Cash allowances to the needy would be a much cheaper way than trying to fix prices (Robbins, 112).
The negative effects of government intervention in the economic sector outweigh the benefits of policies and methods implemented to help the consumer. These policies are found in both the agricultural and business sectors of the economy. On the agricultural side, these policies range from price policies to direct payments to input policies. On the business side, the government can intervene by implementing strict safety and health regulations, tariffs, and subsidies and government loans. While all of this policies seem to have beneficial short-term effects, they never have positive long-term effects. In the end, the government’s spending and intervention in the economy is detrimental. So, should the government stay out of the economy and let it be run by the doctrine of laissez-faire, or is government intervention necessary to the survival of the economy? Many would argue that some intervention is necessary, but in a completely competitive market, there is no need for the government to intervene.
Dommen, Arthur & Carl Mabbs-Zeno. 1989. Subsidy Equivalents: Yardsticks of Government Intervention in Agriculture for the GATT. United States Department of Agriculture: Washington D.C.
Federal Money Retriever. 1998. U.S. Federal Funding Numbers/ By Subject Terms. “http://www.fedmoney.com/fs-subj2.html”
Kaz. 1998. How the Government Spending Creates Jobs. “http://hotbot.lycos.com/director.asp?target=http%3A%2F%2Fwww%2Esmart%2Enet%2F%7Ekaz%2Fspending%2Ehtml%3Fpt&id=10&userid=4EvOxepkQhws&query=MT=government”
Ringer, Robert J. 1979. Restoring the American Dream. Harper & Row: New York.
Robbins, Lord. 1976. Political Economy: Past and Present. Columbia University Press: New York.
The Family Education Network. 2000. “Laissez-faire.” “http://www.infoplease.com/ce5/CE029401.html”