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Location: Unit 2.4: Market Failure and the Role of Government
Discussion: Role of government
Keyword tags:
free markets
government
market failure
public goods
Watch
 welkerjason |
Role of government
Jan 13 2008, 6:55 AM EST My question for you guys is this: Just how much of a role should the government play in a modern market economy? Many politicians and economists argue that the government should play a smaller and smaller role as our market economy becomes more developed. Eventually, all goods and services can and should ultimately be provided by the free market. Education, health care, transportation, even parks and open spaces... if individuals get utility from consuming these things, they should have to pay for them in the market. And when it comes to correcting negative externalities, let the market take care of that too. If someone is being harmed by a spillover from someone elses economic transaction, they should be able to settle on their own, the government should play no role in solving conflicts of interest in a free market. So, what do you think? Should the future be a place of more or less government in the economic lives of the people in free countries? Discuss. 1 out of 3 found this valuable. Do you? |
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HelenChu HelenChu |
RE: Role of government
Jan 14 2008, 4:27 AM EST The government will probably be playing a larger role in the economy in the future as the Coase theorem of individual bargaining is becoming more and more unrealistic. Joint ownerships are becoming more common, legal fees are increasing, more debate is focused on the private or public nature of a good - all of which are increasing the complexity of an externality issue that can no longer be settled simply between the proprietors and the affected. People will turn increasingly towards the government when they can't reach a solution among themselves. 1 out of 2 found this valuable. Do you? |
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Chanmin Chanmin |
RE: Role of government
Jan 17 2008, 6:23 AM EST The role of government in a market economy shouldn't be too large. As the market economy develops, in a free market as time passes, supply and demand can probably eventually set out a price that goods and services have to be paid. As the market economy develops, the role of government may diminish but in the beginning, governments may need to help develop the market economy. For negative externalities, the government uses buying and selling permits, which has actually started to create a market where people can sell and buy permits to gain profit. Therefore for the market economy to develop, the government may need to play a fairly large role in the economy. 0 out of 1 found this valuable. Do you? |
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kevinyeh kevinyeh |
RE: Role of government
Jan 17 2008, 6:54 AM EST I think you're a little confused there, Chan. I don't think the government helps to develop the market economy, because the market economy basically works on its own. It's pretty much like we've been learning all year, like Adam Smith's "Invisible Hand" theory: the market economy runs itself based on supply and demand. It's when the market FAILS due to its inability to correct itself, like through externalities or public goods or things like that, that the government needs to step in. I think the goal is to have less government intervention. The less that is needed, the better. However, when the market DOES fail, the government should be pretty quick to correct it. As for public goods and that controversy, the government is too big of a bureaucracy and that's why a lot of times nothing gets done. Sometimes you need to just step out in spite of some opposition and get things done. After all, it's easier to ask forgiveness than permission. 1 out of 2 found this valuable. Do you? |
 KatherineYang |
RE: Role of government
Jan 17 2008, 6:56 AM EST A free country is like a free market. It's not really "free", there are still rules to abide to. There will always have to be some aspect of the government in the lives of people, otherwise, firms will act much like what the film we watched in class described. Some goods, public goods, will need to be provided by the government, or they will not be provided at all, what does a company have to gain from setting up an open space they won't be paid for? Plus, not everyone can pay for the consumption of public goods. It's not fair if you're excluded from a park bench because you cant pay the bench fee, it's going to make the rich richer and the poor poorer. We have enough of that already. 1 out of 2 found this valuable. Do you? |
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KristieChung KristieChung |
RE: Role of government
Jan 17 2008, 7:33 AM EST Although the market economy does run itself with supply and demand, the government still has a necessary role to play. The government will still need to be there to step in when the market economy is unable to correct itself. Even as a market economy continues to develop, I think there will still be times when the government needs to intervene. I don't think it's possible for ALL goods and services to be provided by the free market. 0 out of 1 found this valuable. Do you? |
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dayzrox dayzrox |
RE: Role of government
Jan 17 2008, 9:22 AM EST Politicians will always argue: it's their job. Economists, on the other hand, argue for practicality in real-life situations. But you know what people of these two professions have in common? They're both human and as human beings, all of us behave in a way that will yield us the greatest self-interest. Thus, in the end, we will all contribute to instabilities if only a free market existed. Just look at one example: congestion pricing (the concept of charging higher fees to consumers for a good or a service at times of heavy use) already widely used in Singapore, London, and traveling agencies. American politicians and economists disagreed with the Bush Administration who has sought to administer the same plan in the United States from 2007. Their argument was that introducing congestion pricing on a wider scale will mean overcoming powerful cultural and psychological obstacles. Psychological obstacles? One might ask. You guys are economists, for goodness sake. In the end, it is obvious that politicians and economists are unwilling to pay for congestion pricing in cities they are living in themselves. This will inevitably lead to "Tragedy of the Commons," which will in turn lead to overusing the resources of a world that is in fact, limited. The only way to curb this dilemma is for a powerful government to intervene and administer congestion pricing to reduce emissions and the tolls of global warming. Thus, isn't it only sensical that governments exist even in the modern society today? Who will enforce laws and settle conflicts without the mighty grip of government power? Who will seek to exterminate child labor in a society that advocates consumerism? Think about it. 0 out of 1 found this valuable. Do you? |
 ElaineLung |
RE: Role of government
Jan 18 2008, 1:50 AM EST That's a good point about the public goods. We -will- need government intervention in the economy to some extent because goods for which total demand is unaccountable won't really ever be provided by private firms unless we eliminate the free-rider problem. Of course, individuals -should- have to pay for things like education, health care, etc. but as long as we can get away with not doing it, it's pretty obvious what the result will be. 0 out of 1 found this valuable. Do you? |
 JessicaNg |
RE: Role of government
Jan 18 2008, 11:23 AM EST Government certainly needs to play an important role in a market, as "free" as it may be. Sure, maybe to resolve certain issues in order to prevent the "tragedy of the commons", you can just privatize everything. But that does not always work. When it comes to actual "commons" in which there is there is no clear definition, and in most cases, no definition at all, for its responsibility, such as the air we breathe in, nobody's willing to privatize it. Nobody is willing to take responsibilities for these "commons." And that's the tragedy of it all. This is where the government is the key player. Corrective tax, to correct the overallocation of certain resources in order to limit the emissions of greenhouse gases is an example of what a government can do. If the government is not there to regulate these issues, nobody will. Firms are only interested in their self-interests, and since their MB> MC as a result of pollution, they have no incentive to do anything about it unless the government is there to do something to stop our planet from degrading. 0 out of 1 found this valuable. Do you? |
 yunqimok |
RE: Role of government
Jan 19 2008, 1:41 AM EST By the 19th century when industrialization overtook Europe, and the bourgeois middle class fought to protect laissez-faire economy with absolutely no government intervention, the people were crying out for protection against exploitation. Hence, socialism developed and became extremely popular. Government intervention is significant because of the "tragedy of the commons" as well as externalities. If eveything was provided in the free-market, then there would be no public goods such as park benches or street highways. No one would provide them as no one would be willing to pay for something and also allow everyone to free-load off of it. For cases such as health care and welfare, it is ridiculous to ask poor people to pay for their own welfare. The world is unfair, as there are rich people and poor people. Society cannot exist if the poor people receive no help at all. Even though taxation might be unfair as taxes such as the income tax is a progressive tax, people should take a little responsibility of each other; the government exists to ensure this. Thus government is exceedingly important as otherwise people would just exploit each other to death. 1 out of 2 found this valuable. Do you? |
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SoyeonYoon SoyeonYoon |
RE: Role of government
Jan 19 2008, 2:58 AM EST Government intervention is certainly unavoidable even in the free market. Without government control, there will be disorder in the market. Sometimes the government has to set price ceiling or price floor in order to control the high prices or activate the labor force. Government has to levy taxes on firms in industries which create negative externalities and should legalize the tax so that firms who do not abide by the laws should be punished. In respect of public goods, the only one who will provide the public goods is the government. If there is no government intervention at all, the economy will collapse because there is no control at all. 1 out of 2 found this valuable. Do you? |
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JackLo JackLo |
RE: Role of government
Jan 19 2008, 6:09 AM EST We all know that there aren't any 100% 'free' markets out there. Almost every country has a mixed economy. When the economy is running properly, the governemnt should not interfere with the market to a great extent. However, when there is a market failure and some things are either underprovided or overprovided, the government has a responsibility to step in. Afterall, we pay our governments tax money and cast our votes for them not so they can sit around and do nothing, but so that they can make sure everything in the country is doing okay, including the economy. 1 out of 2 found this valuable. Do you? |
 howardlin |
RE: Role of government
Jan 19 2008, 8:16 AM EST I think that the role of Governments to interven and correct the market failure is very imporant. Because when the under and overallocaiton slips through the fingers of the invisiable hand, who's going to correct the problem? Whos going to provide the benches? the road? the highways? street lights? There would be no public goods at all. Total privatization is not a good idea, because then no one will ever share anything with anyone, 0 out of 2 found this valuable. Do you? |
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jeewono jeewono |
RE: Role of government
Jan 19 2008, 9:16 AM EST Despite the presence of a modern market economy in which the government plays a smaller role, I think the government will intervene more in the future. Like Howard said, if the "Invisible Hand" of the free market is not able to correct externalities or spillovers, isn't direct control by the government needed? Also, we cannot apply the Coase Theorem in the future, because it requires a small number of people, negligible bargaining costs, and property ownership in order to solve externality problems without having the government involved. However, as the economy continues to develop, we cannot avoid high bargaining costs, large numbers of affected parties, and problems with community property. 1 out of 2 found this valuable. Do you? |
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jacqueszhang jacqueszhang |
RE: Role of government
Jan 19 2008, 9:55 AM EST The amount of government participation in a market really depends on what markets exist. Clearly, we've established that products with clearly defined demands are to be left for the free market to deal with. However, when the demand of a product is not fully represented, or adequately shows through supply and demand, the government is more suited to supply this product for free and use surveys and the such to determine about how much the allocation of resources should be placed. 1 out of 2 found this valuable. Do you? |
 anqxl |
RE: Role of government
Jan 19 2008, 11:57 PM EST The role of government should be limited to an extreme that the government only exists to regulate the laws and provide the adequate amount of public goods. If you think about it, some enterprise might be willing to provide public goods for the below reasons: 1) public image--which earns them consumer trust and higher sales revenue in the future AND makes the business stand out in the industry 2) tax reduction--all charity work receives government reward 3) higher share/stock value--as consumers buy more of that particular product, it is likely that the company will profit more and make it a good investment. Notice that all these are monetary incentives for a business to provide public goods so even without government provision, society will still receive some public goods without much government intervention. 1 out of 2 found this valuable. Do you? |
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richardtu richardtu |
RE: Role of government
Jan 20 2008, 2:12 AM EST It is reasonable that if people are getting benefits from goods, then they should somewhat pay for the utility, and this relates to the ideas we learned in class about benefits-recieved principle. Therefore, the free market would be able to ultimately run on its own without government intervention. However, when it comes to correcting negative externalities for the society, personally, i disagree to let free market exert control. Think about it, with a government taxing firms on discharging wastes, then the firms are FORCED and have to reduce to the exact amount that government set, and be highly responsible for it. However, if the free market and firms take control over everything, things would be different. Every rational individual or firm's goal is to maximize his or her profits and the limitless desire. Therefore, when it comes to regulating negative externalities, they would definitely regulate the smallest amount as possible to reduce cost, and leave it to the Earth itself to recycle the waste. Thus, the idea of "tragedy of the commons" would still exist. 1 out of 3 found this valuable. Do you? |
 ChrisFishSeah |
RE: Role of government
Jan 20 2008, 2:38 AM EST The government will inevitably play a large (and important) role in the economy; even a modern one. Sadly for us, the Coase Theorem cannot be put into play in today's market because it is getting very, very big and involving millions of people, even causal investors here in China. This will cause inherent instability, and it is often the duty of the government to remedy this. Case in point: Wall Street crashes. The Central Bank and the US government are sometimes able to avert or otherwise mitigate a market crash by lowering interest rates to encourage more investors to inject money into the market. Other times, direct control involving necessary taxes or subsidies, as covered in chapter 28, are able to ensure proper allocation of goods and services for the benefit of citizens. It has been shown time and time again that a free market is not always able to regulate itself! Remember 2000-2001? 1 out of 3 found this valuable. Do you? |
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MichaelChow MichaelChow |
RE: Role of government
Jan 20 2008, 3:13 AM EST Yes the role of government when it comes to correcting negative externalities is definitely essential. Suppose the government were to issue a new and harsh tax on gasoline as the price of gasoline is forced to increase the demand of consumers of this good would inevitably decrease. I agree with Chris how the Coase Theorem cannot be used in today's market because of the same reasons, it is too enormous to have an effect. Overall if the government makes decisions rather than the free market it will have a greater immediate effect rather than a slow progressive one. 0 out of 3 found this valuable. Do you? |
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nicolewong nicolewong |
RE: Role of government
Jan 20 2008, 3:48 AM EST Sure enough, the government has a role to play. If markets were completely capitalist, issues such as global warming would get out of hand and countries would have poor national defense. On the other hand, if the government controlled the economy too much, bigger problems are faced (remember the Russian centralized economy, Chris?) However, I do believe that the Coarse Theorem can solve other issues. It may not be effective for large-scale problems like pollution, but it can help solve minor issues (e.g. Mr Welker's story about the tree) On the whole, the government should intervene in the market only when there are issues at stake that cannot be solved by a free market itself, for example negative externalities. 2 out of 3 found this valuable. Do you? |
