Answer to Question #145336 in Macroeconomics for MarciA

Question

Give three reasons for government intervention in the economy

Answer 1

1. Equality. In a free market, there is expected to be substantial inequality and suffering. This is not attributable to a meritocracy, but it may be linked to unequal advantages in situations (inherited capital, superior education). Governments should operate in order to deliver a fundamental safety net: unemployment benefits, guaranteed wage for sick and disabled persons. This boosts net economic growth and makes it easier for people to flee the toughest suffering. This government interference will also deter extreme injustice from civil unrest.
2. Public goods. There is no free market in which public goods appear to be distributed and businesses do not have a commercial motive to sell free goods to citizens. Governments can provide national defence, law and order and pay for it through general taxation. Environmental concerns are also a positive for the public. There are more and more areas in which a government is required to deal with problems such as forest fires, extreme weather events and demands on water.
3. Education. Due to underestimate personal gains and/or disregard external advantages, value is not included to merit goods in the free market. This adds to inadequate health and education provision. Government action in order to provide free education will greatly increase the quality of life of educated individuals. The rest of civilization still has a lot of constructive externalities. A highly educated population can increase productivity and economic growth.