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Essay on Government Intervention And Its Disadvantages
| Date: |
09-15-98 8:02am |
| Subject: |
Business |
| Word Count: |
1421 |
| Page Count: |
5.68 |
Government Intervention And Its Disadvantages
Government
Intervention And Its Disadvantages
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.
works cited:
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"
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