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.

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

government is supposed to represent the public interest; if it wants to use its ownership position to influence a company to do things that are in the public interest - like building more fuelefficient cars - then I have no problem with that. This is not to say that there are no risks with government ownership. There is the risk of political meddling, where various politicians put pressure on companies to advance their personal interests, or the personal interests of their constituents. There is the risk that, in order to achieve political objectives (like preserving jobs), the government continues sinking money into the car companies - money that would do a better job of creating jobs elsewhere in the economy. As a result, government positions in private companies need to be managed according to clear rules and with a high degree of transparency. But I don't think we need to accept that a role for government is evil, even a lesser evil, or that it is somehow antithetical to the proper functioning of the economy. Many people have pointed out that the current crisis demonstrates the downside of unbridled capitalism. It's surprising that so many people - all the way up to our president - persist in claiming that unbridled capitalism is nevertheless the optimal form of economic organization.
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Pros & Cons of Budget Cuts

Shane Hall Shane Hall is a writer and research analyst with more than 20 years of experience. His work has appeared in "Brookings Papers on Education Policy," "Population and Development" and various Texas newspapers. Hall has a Doctor of Philosophy in political economy and is a former college instructor of economics and political science. By Shane Hall, eHow Contributor updated January 16, 2011
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Politicians in many state capitols may cut budgets to balance state finances. When economic hard times hit, households and businesses face hard choices about spending and investment. Faced with the possibility of job losses and less business, families gather around the kitchen table and business leaders meet in conference rooms as they go over their checkbooks and budgets, deciding where to make cuts. Such sacrifices are not limited to families and firms. A sluggish economy generates less revenue for governments, forcing tough decisions from

policy makers. Like most decisions in politics, government budget cuts come with pros and cons.
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Pro: Alternative to Raising Taxes

When revenues from taxes and fees decline, government officials face a gap between projected revenue and planned expenditures. Unlike the federal government, which can borrow to finance its budget deficits, state and local governments must balance their budgets. For governments facing a budget deficit, balancing the budget means raising taxes, cutting spending or instituting a combination of both. Raising taxes is never popular but can be political suicide during an economic recession. Often, policy makers prefer to look for budget cuts as an alternative.

Pro: Reducing Government

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Households and businesses have to live within their means. Politically conservative citizens and policy makers contend that government should live by the same standards. For advocates of a smaller, less intrusive government, budget cuts reduce government involvement in the economy and the lives of citizens. Political scientist James E. Anderson, author of "Public Policymaking: An Introduction," writes that most policies cannot be implemented without funding. Budget cuts that sharply reduce or eliminate funding can kill a program without repealing the law that created it. Depending on the nature of the cuts, a reduced budget may mean less government regulation of business activities or less involvement in education and health care.

Con: Fewer Government Services

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Government budget cuts may reduce the scope of government, but also may reduce services that many citizens want. Reductions in planned spending may delay needed street repairs, reduce local garbage pickups and reduce hours at local public health care facilities, public libraries and recreation centers. Policy makers facing spending cuts prefer to avoid cutting spending for police and fire protection, as cuts in those areas could affect public safety. Politicians who reduce or eliminate popular public services through budget cuts may face punishment from angry voters at election time.

Con: Negative Economic Effects

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Like spending by consumers and businesses, government purchases of goods and services contribute to the gross domestic product (GDP), an aggregate measure of overall economic output. English economist John Maynard Keynes, writing during the Great Depression of the 1930s, argued that government should boost its spending during a sluggish economy to stimulate overall output. Government budget cuts reduce public spending, which affects the overall economy. For example, defense spending cuts that eliminate spending on certain weapons systems and military equipment reduce business for the firms that produce these goods. The companies could be forced to lay off workers, raising unemployment and reducing GDP even further.

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http://www.sparknotes.com/economics/micro/supplydemand/equilibrium/section2.rhtml THE ABOVE LINK IS VERY RELEVANT - -PLS VERIFY @@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@ @@@@@@@@@@@@@@@@@@@@@@@@@@@ http://www.college-cram.com/study/economics/chapter/government-intervention/ http://www.indianchild.com/indian_economic_policies.htm