Question

Among other things, President Obama has often been criticized by Republicans for having increased government regulations which they claim has harmed American businesses.Since taking office, President Trump has reversed many of these regulations and some believe that our ongoing economic expansion could partly be attributed that. We do know that in just about all market economies there are laws and regulations that governments impose on business activities. What are the reasons behind such regulations? To what extent are they necessary? Do you think American businesses were or still are over-regulated?

Note: Try to be as specific as you can in your arguments. For example, if you think there are too many regulations, identify the type of regulations that you would get rid of and explain why.

Answer 1

There are many economic reasons behind following regulations in a market economy rather than a Laisez- fair policy. The most important justification is that the regulations are followed in order to correct the market failure situations. That is when the price does not reflect the true costs and benefits there is market failure. Government intervention can correct this situation. Next is the government regulation in the market economy restrict the growth of monopoly in the economy. As a result there will freedom of entry and exit. This ensures competition and innovation in the market which ultimately leads to economic growth. Another important point is that the government regulation can increase the transparency in the market and it helps to protect the rights of all economic agents such as producers, consumers, investors, etc.

To a good extent this regulations are good for the welfare of the people. It is generally argued that when there is the free interaction of economic forces of demand and supply without any government regulations there will be stability in the market. Any disturbances will be short lived. But in the economic history the great depression proved that this cannot be always true. It also creates monopolies and there will be distributional injustice. Another thing is that the channelization of resource to the most appropriate uses or setting priorities is better managed by the state. Free market will bring about economic efficiency but not always ensures the welfare of the maximum people. For that the government regulation is necessary. But over restrictions will disincentives the economic agents. So the extent should be clearly and properly defined.

This is true for the case of America. That is government regulations will bring in some benefits to the economy as whole. It prevents monopoly power, leads to more just distribution of resource, ensures proper use of resources, etc. But this should not be to an extent of disincentives the producers, investors and global players. Always the overall growth of economy should be the prime objective. So the government policies should not be favoring some categories, it should be transparent.