Question

Too much government intervention might make things worse. Whay?

(300 words) No written responses please, only typed.

Answer 1

Government Failure- Failure by government is a term for describing how government intervention can cause its own problems. The government , for example, can take decisions for short-term political consideration that lead to an inefficient result. Government tariffs to protect domestic manufacturing, for example , set off a trade war, in which the economy collapses.

Lack of incentives- Individuals have a profit incentive in the free market to innovate and cut costs, but that incentive is not there in the public sector. Consequently, this can lead to inefficient production. State-owned companies , for example, have also become inefficient, overstaffed, and manufacture products that are not requested by customers.

Political lobbying groups- Milton Friedman once qupped 'There is nothing as permanent as a temporary bailout of the government.' He was referring to subsidies for farming. Introduced during the Great Depression in the 1930's to alleviate a recession in agriculture. No government dared to remove subsidies after the Second World War because the farmers were a powerful pressure group that wanted to keep the subsidies.

Less choice- Policy interference in the economy ( e.g., sector nationalisation) has also been correlated with reduced competition. Services produced by the Government have a monopoly. Command societies, when the government determined what to make, frequently had very little alternative. Choice is an important element of economic freedom and will enable individual welfare to be maximised. (Every interference by the government doesn't lead to less options.