Looking into Economic Government Intervention

By Ian Shayne

Since the inception of the United States, liberals and conservatives have often argued the extent to which the government should involve itself in the economy. In 2008, Wall Street investment banks nearly destroyed the world’s economy and the debate increased in intensity. In 2010, Barack Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was a large piece of federal legislation that developed a group to oversee the transactions of Wall Street investment banks. Now, soon after the House of Representatives voted in favor of the Financial C.H.O.I.C.E. Act, an act to push the government off the backs of banks, the following question becomes even more essential to consider: does government oversight stimulate positive growth?

In the case of the Dodd-Frank Act, government oversight proved to be successful. The public would have been furious if the government simply bailed out the criminal bankers without any regulation. The public (i.e. the consumers) would lose even more faith in the banks and stop investing, which could lead to a significant financial loss for the banking industry, which holds much of the world’s money. Oversight also lowers the probability of another crisis because the Federal Reserve can regulate it. The government has few motives not to involve itself. Now, we have established that government is often crucial for a strong economy, but how much is too much regulation?

Price ceilings can sound advantageous at first glance, but with some thought, they can be incredibly detrimental to the economy. If the market equilibrium price is lower than the ceiling, they are unnecessary. If the ceiling is set below the market equilibrium price, shortages may occur. Any positives? Price ceilings can prevent unfair treatment by the sellers if they all agree to charge a ridiculous price for a particular good.

Price ceilings may be a form of government and economic policy, but I would like to explore the answer to one of the questions in Naked Economics that infuriated Wheelan: if economists know what makes countries rich, why are some countries poor? Part of the problem is rich countries tangling themselves up with the Samaritan’s Dilemma.

One example of this is U.S. energy independence. At first, it seems exceptional. The United States would not have to rely on foreign oil. But, there is a downside: foreign economies. Countries that rely on oil would lose a substantial amount of money and insurgency might ensue. Why should the U.S. care? Being involved in a proxy war in Syria, the United States should probably avoid foreign conflict and hostile relations will oil-rich countries. The positive side? The Samaritan’s Dilemma effect. Possibly, oil-rich countries could realize the lack of demand for their oil and invest in human capital. With oil in high demand, they have no incentive to do so.

Now, let us discuss market invention again—a key difference between communism and capitalism. Some right-wing politicians, like Bush official James Capretta, often state that the affordable health care is an example of wealth redistribution. Is affordable healthcare like the Samaritan’s Dilemma? Does it create a perverse incentive in which impoverished people are encouraged to stay in their current financial situation? Probably. Then, why is this a no-brainer? Perhaps because taking away health insurance for low-income citizens will cause death. Not just a couple deaths, but over 43,000 annually!

After stating arguments for both sides of government intervention in the economy and the extent to which government should play a role, I realize that I have not yet provided an answer to the question I, myself, posed: how much is too much regulation? Communism is clearly too much regulation, but so is libertarianism. Macron pitches centrism. Is that right? I do not want to spark a political debate, but, the United States government debates between the “thirty-five yard lines” of the political spectrum. Personally, I could not wish for a better place to be.

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