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Arguments In Favor Of Government Intervention
There are a good number of societies that use their governments to intervene and face the problems that the markets create or the ones that cannot be resolved by them. The interventions of the government in the economy generally comes about in the following way:
- Prohibitions over production or consumption of goods and services that are considered dangerous or immoral. An example of this can be how governments can prohibit drugs or establish “taxes on vices” on certain things such as cigarettes and alcohol and even though these two last mentioned are legal, they are considered products that should not be motivated. However these prohibitions frequently only work partially because the market still has significant incentives to provide such goods and services.
- Subsidies to stimulate production of goods and services that are considered desirable. An example of this is how most governments strongly subsidize education of children or providing medical services. They do this because of fear that without subsidies they provide insufficient education and inadequate medical services.
- Taxes on the wealthy to provide goods and services to the less favored and to reduce the inequality of income and wealth. These taxes are used to provide nice parks, clean air and give access to the arts, for example, as well as goods and services to the poor. The governments put a lot of weight on these individuals and businesses in order to obtain the money for these things.
Depending on the situation, the combination of products generated by a government intervention can be better or worse then the combination of the market in terms of productive efficiency, distributive efficiency or both. Which combination is best depends on the concrete aspects of each.