Government Intervention Government intervention is not necessarily bad, although it has been generally accepted that the best

government policy for the growth of a nation's wealth is that policy which governs least. There are some essential services that simply will not be provided by the market without the support of government: either the services are financially not viable, or the charges for the services are too high for the less well-off to bear. There are examples of government intervention everywhere. The physical infrastructure - roads, tunnels and bridges - to allow the safe movement of people and products, and the financial infrastructure - payment, settlement and clearing systems - to enable the safe mobility of money are essential to economic wellbeing. The upholding of law and order, taking care of those members of the community who are less able to take care of themselves, education and housing all involve government intervention to varying degrees. Whether or not government intervention is desirable in a particular case is always debatable. It is tempting, particularly when bureaucrats do not wish to take on responsibilities, to argue against intervention. It is equally tempting, when particular sectors of the economy are experiencing difficulties, to argue for government intervention, even if that means committing taxpayers' money to sustaining activities that are destined to fail. Politics and vested interests often come in, and emotions may run high. It is for those responsible in government to weigh the pros and cons of government intervention and those of leaving things alone. This is never easy. The community may not have the time and patience for the philosophical justifications to be articulated in each and every case. This makes it all the more important to have these articulated within a well-established framework and for that framework to be continually debated and publicised. We used to have that - the philosophy of positive noninterventionism, and it has served Hong Kong well. @@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@ @@@@@@@@@@@@@@@@

What's So Bad About Government Intervention?
As the federal government dives headlong into one of the most massive interventions into the private sector in decades - the restructuring of GM through bankruptcy, which will leave the government with a 60 percent ownership stake in the company - everyone seems convinced that government involvement is a bad thing. Even its advocates and architects consider it only the least among evils: President Obama said, "We are acting as reluctant shareholders, because that is the only way to help GM succeed. What we are not doing -- what I have no interest in doing -- is running GM," and promised the government would "refrain from exercising its rights as a shareholder." In part this is an attempt to deflect criticism from the opposition, which is surely ecstatic to actually have something that looks vaguely like socialism to complain about; remember, they made do with much less in calling Obama a socialist during the campaign. But all appearances suggest that Obama and his entire economic team truly believe that government intervention is necessarily bad.

it could simply decide not to vote. most of whom also know little about running an auto company. A large proportion of the stock of any large company such as GM is in the hands of individual investors. etc. such as donating money to charities. appoint a few highly respected trustees. Planet Money raised the idea that managing a company for anything other than profit may be illegal. Another argument is that government intervention exposes GM to political motivations. the rest is in the hands of institutional investors. the concern is that the government may seek to have GM pursue objectives that a purely profit-maximizing company would not pursue. First. etc. This may be true. but it misconstrues the role of shareholders in running large companies. it is allowed to do things that have only the most tangential relationship to profitability. What we need now is for the government to use that equity to appoint a good board of directors. In general. that's a bad thing. will produce more gas guzzlers and fewer small cars than is socially optimal. The job of the shareholders is to elect and oversee the board of directors. The important thing is that the managers know how to run an auto company. and doesn't know anything about auto companies in particular. geopolitics. Even when a company has multiple shareholders. though. and at a time when no one else would lend money. However. instead of the pure profit motive. most of whom know little about running an auto company. that should be considered on the merits. there are cases in which a court has ruled that a majority shareholder cannot run a company while completely ignoring the profit motive.). I can run it any way I want. The most common argument against intervention is that the government is bad at running companies in general. The . on its own. For example. and charge them with voting the shares in a way that maximizes benefits to the taxpayer. Market incentives ignore externalities. . government ownership leads to politicization of business decisions. because this hurts minority shareholders. Well. If I own a company outright. the profit motive ensures that the socially optimal amount of investment is made in various investment possibilities. Second. and their job is to select and oversee the actual management of the company.and they make sense. it has a couple of options. In theory. and let the remaining shareholders elect the board. More generally. the government amassed its position by lending GM more money than anyone else. and in the real world government intervention is just one policy option among others.the profit motive is necessary to ensure efficient allocation of resources.I know the theoretical arguments for why government intervention is bad . if the government is providing non-market incentives for Chrysler to build a certain type of car. In this case. it's not true that a company has to be run solely according to the profit motive. and this will lead to inefficient outcomes. greenhouse gases. For example. such as the fact that gas guzzlers are bad for society in all sorts of ways (toxic air pollutants. The market. it could place its shares in a voting trust. the government has already promised Fiat an additional ownership slice in Chrysler if it comes out with a car that gets 40 miles per gallon. and for the biggest creditor to emerge with a controlling share of the equity. maybe. and that the board know enough to know if the managers are doing a good job. But we do not live in a theoretical world. If we don't feel the government is up to that task. It's common practice for loans to be converted into equity in bankruptcy.

Faced with the possibility of job losses and less business. where various politicians put pressure on companies to advance their personal interests. or that it is somehow antithetical to the proper functioning of the economy. Such sacrifices are not limited to families and firms. eHow Contributor updated January 16. It's surprising that so many people . There is the risk that. in order to achieve political objectives (like preserving jobs)." "Population and Development" and various Texas newspapers. There is the risk of political meddling. But I don't think we need to accept that a role for government is evil. government positions in private companies need to be managed according to clear rules and with a high degree of transparency. forcing tough decisions from . households and businesses face hard choices about spending and investment. Hall has a Doctor of Philosophy in political economy and is a former college instructor of economics and political science. 2011 y Politicians in many state capitols may cut budgets to balance state finances.all the way up to our president . A sluggish economy generates less revenue for governments. if it wants to use its ownership position to influence a company to do things that are in the public interest . deciding where to make cuts. families gather around the kitchen table and business leaders meet in conference rooms as they go over their checkbooks and budgets.like building more fuelefficient cars . By Shane Hall. the government continues sinking money into the car companies . Many people have pointed out that the current crisis demonstrates the downside of unbridled capitalism.persist in claiming that unbridled capitalism is nevertheless the optimal form of economic organization.government is supposed to represent the public interest.money that would do a better job of creating jobs elsewhere in the economy. even a lesser evil. or the personal interests of their constituents. His work has appeared in "Brookings Papers on Education Policy. @@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@ @@@@@@@@@@@@@@@@@@@@@@@@@@@ Pros & Cons of Budget Cuts Shane Hall Shane Hall is a writer and research analyst with more than 20 years of experience. When economic hard times hit.then I have no problem with that. As a result. This is not to say that there are no risks with government ownership.

public libraries and recreation centers. cutting spending or instituting a combination of both. Policy makers facing spending cuts prefer to avoid cutting spending for police and fire protection. Political scientist James E. Budget cuts that sharply reduce or eliminate funding can kill a program without repealing the law that created it. Politicians who reduce or eliminate popular public services through budget cuts may face punishment from angry voters at election time. The companies could be forced to lay off workers. For advocates of a smaller. as cuts in those areas could affect public safety. government officials face a gap between projected revenue and planned expenditures. government budget cuts come with pros and cons. which affects the overall economy. Like most decisions in politics. raising unemployment and reducing GDP even further. an aggregate measure of overall economic output. writing during the Great Depression of the 1930s. Pro: Reducing Government y Households and businesses have to live within their means. For governments facing a budget deficit. policy makers prefer to look for budget cuts as an alternative. defense spending cuts that eliminate spending on certain weapons systems and military equipment reduce business for the firms that produce these goods. balancing the budget means raising taxes. Politically conservative citizens and policy makers contend that government should live by the same standards. For example. Con: Negative Economic Effects y Like spending by consumers and businesses. state and local governments must balance their budgets. Raising taxes is never popular but can be political suicide during an economic recession. Con: Fewer Government Services y Government budget cuts may reduce the scope of government. . author of "Public Policymaking: An Introduction. argued that government should boost its spending during a sluggish economy to stimulate overall output. Often. Anderson. budget cuts reduce government involvement in the economy and the lives of citizens. Reductions in planned spending may delay needed street repairs. a reduced budget may mean less government regulation of business activities or less involvement in education and health care. English economist John Maynard Keynes. but also may reduce services that many citizens want. less intrusive government. government purchases of goods and services contribute to the gross domestic product (GDP).policy makers. Unlike the federal government. y Pro: Alternative to Raising Taxes When revenues from taxes and fees decline." writes that most policies cannot be implemented without funding. Government budget cuts reduce public spending. 1. reduce local garbage pickups and reduce hours at local public health care facilities. which can borrow to finance its budget deficits. Depending on the nature of the cuts.

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