Question

Discuss the extent to which Market failure provides sufficient justification for government intervention into your country's economy?

Answer 1

There is no real model of a society run in the absence of government intervention. Even the most extreme libertarian economists would accept there needs to be some state protection of property rights and spending on national defence. The debate comes on the extent of government intervention. This needs to take place in each aspect of government intervention. For example: The arguments for and against government intervention in macro economic stabilisation are very different to the arguments for and against providing universal health care. There are both positives and negatives for the government intervention.

Arguments for government intervention

1. Greater equality – redistribute income and wealth to improve equality of opportunity and equality of outcome.
2. Overcome market failure – Markets fail to take into account externalities and are likely to under-produce public/merit goods. For example, governments can subsidise or provide goods with positive externalities.
3. Macroeconomic intervention. – intervention to overcome prolonged recessions and reduce unemployment.
4. Disaster relief – only government can solve major health crisis such as pandemics.

Arguments against government intervention

1. Governments liable to make the wrong decisions – influenced by political pressure groups, they spend on inefficient projects which lead to an inefficient outcome.
2. Personal freedom. Government intervention is taking away individuals decision on how to spend and act. Economic intervention takes some personal freedom away.
3. The market is most efficient at deciding how and when to produce.