Government Involvement in the Economy

Government Involvement in the Economy

In the capitalistic society in the United States, Government plays many roles in the economy. Government has been regulating, overseeing, and providing many services in the economy since the inception of our nation. Modern day government has had an increasing presence in the American market as it has gotten larger and more complex. It has become necessary for government to interject its involvement into the economic system to maintain the sustainability of the economy. The fact is, capitalism cannot and will not regulate, enforce, or provide all the necessary goods and services that consumer need. Government is needed to regulate corporations, provide public services infrastructure, and protect the rights of the consumer. Government involvement is a quintessential factor for the success and growth of a capitalistic economy. Although some economists and businessmen believe that the economy should be allowed to move freely based on the laws of supply and demand without government intervention, government involvement is necessary to ensure a competitive market and help prevent market failure. Ever since the Clayton Anti-trust Act was passed in 1890, government has regulated and broken apart monopolistic businesses. Since businesses are constantly moving towards a monopoly or oligopoly, government regulators must be increasingly vigilant in regulating monopolistic businesses to prevent a non-competitive market. If the government did not regulate businesses to prevent monopolies, then those corporations would become too politically powerful, decrease total output, and increase their prices. An example of the harmful effects a monopoly can have on politics is when a monopolistic company threatens to raise the price of a good or service that is important to the government in order to bring about a desirable result. Another reason government must stop monopolistic companies is because they artificially raise their prices in order to create a shortage. Once an economic situation occurs where demand for goods greatly exceed the supply; the company can sell as much as they want at a given price, they have an incentive to raise their price, and consumers can never get as much as they want at that price. Government must also prevent harmful business practices in order to help avert market failures. For example, the 2008 global financial crisis was a result of deregulation and less government oversight. In the 1980s and 1990s, the Glass-Steagall Act separated traditional banks with shadow investment banks. As a result, the shadow banks became increasingly riskier with respect to how they invested over the years. In 2008, the global market came crashing down and prompted government to revert to a firmer regulatory position. Had government properly regulated the markets and not taken down Glass-Steagall, the economy would not have collapsed and would still be growing. Harmful monopolies must be broken up because they cause prices to be higher and reduce output. Therefore, the United States economy requires a government presence to regulate the economy and businesses. Some people believe that the market competition within capitalism will meet the needs of the consumers. However, capitalism does not provide all the necessary goods and services that consumers require. Business only care about making money and increasing profits. In order to make profits, the company must quickly research, develop, and produce a sellable product or service. In other words, businesses will not provide money for public infrastructure, new technologies, and basic services to the poorer echelons in the economy. Public infrastructure like bridges, highways, and recreational parks do not make profits and therefore businesses will not invest in them. Therefore, the government must provide money to create and maintain public infrastructures. The modern age would not be in existence today had it not been for government investing in new technologies. For example, the technology that went into designing, constructing, and building spacecraft has grown and developed into something that consumers can use. Specific examples would be the modernization of photovoltaic solar panels, lasers, microchips, enhanced photo imagery, and ultra sound imaging to name a few. These technologies are now being used in all aspects of life and are the result of government funding. Government must also come into the market to provide access to basic services to the populace. Those services include Medicare/Medicaid, welfare, social security, and public education among many others. Like every country in the world, the United States has many underprivileged, disabled, uneducated, and elderly people, who may not be able to obtain all that is needed to have the basics in life. Therefore, government must provide certain services that would ordinarily not be provided in a free market system. The capitalistic economy will not supply the funds, time, and resources to produce long term solutions because deferred benefits will not make businesses money in the short term. Therefore, government is necessary to provide basic goods and services to assist and enhance the quality of life for all social classes. Finally, government is needed to protect the rights of the workers and consumers. Companies are in business to make a profit and do so by having more income than overhead costs. One way to keep overhead down is by denying certain rights to their employees. If it was up to companies, the rights of the workers would be diminished to maximize profits. These rights include: fair salary, safety requirements, collective bargaining, and reasonable hours per week. Unions have fixed many injustices over the years through the use of collective bargaining, a right given through the federal government. The rights of the consumers also need to be preserved. Competitive markets mean cheaper prices for the consumers and the right to choose which good or service they want to buy. Consequently, government has shown to be of the utmost importance to prevent abuse and provide basic rights to the public.
Government must constantly work with the market to keep the economy moving in the right direction. Government must regulate businesses to prevent market failure and promote competition. Moreover, government must provide civil services and funding to create new technologies and build public infrastructure. Lastly, government is needed to protect the rights of the general public.