Syndicate
Keeping a Stable Economy
However, we have never had a purely “laissez faire” economy and most likely this will not occur to us. It is a fact that the economies of the market that work adequately and that use price mechanisms to assign resources need considerable support from the government. Amongst other things, the economies of the market need the government to:
- Make people respect the rights of property so that people do not steal.
- Apply legal systems to be able to redact and make people follow contracts that allow people to buy and sell goods and services.
- Make people respect standardized systems of weights and measures so that the people know they are not being cheated.
- Provide a monetary supply that is stable and safe from counterfeiters.
- Make people comply with patents and authors rights to encourage creativity and innovation.
It is important to know that these things need to work in order for the market to work. This way, a more modern and moderate version of laissez faire says that the government should provide the institutional frame that is necessary in order for the economies of the market to work, and then, simply allow the people to make and sell what is on demand.
However, most people want for the governments to go beyond simply establishing the necessary institutions for the markets to work. They want the government to impede the production and selling of things such as drugs or that they subsidize the production of elements that the economy of the market does not sufficient amount of, such as housing for the poor. Very often, they also want to burden the rich to finance governmental programs for the poor.
A lot of government programs are so common that you probably don’t even think about them as government interventions. One example of this is free public schools, the warning labels on medication you buy, and taxes on certain vices such as cigarettes and alcohol and the obligatory contributions to the pension systems are all government interventions in the economy.
The government interventions that are required to implement such programs are, in many cases, not efficient. However there are a lot of people that would argue that there are more important things that efficiency, and that the inefficiency caused by many of the government interventions are justified from the benefits that they finally bring about. For these people, these types of interventions increase their total happiness even though, strictly speaking, they are inefficient.
Since the economies of pure markets do not give us all the things that people want, there are many societies that have opted for some – and in many cases several – government interventions in the economy. The result is that now a days most of the economies are mixed, with some aspects of planning and direct control of the economic activity in combination with a market economy that uses the price system to assign resources.
Finally, all the government interventions, both the good and bad, are the result of a political process. In democracy, speaking in general terms, the level of government intervention is a reflection of the will of the people. In the nations where the people trust the market more, such as in the United Kingdom and the United States, you can see market economies with less government intervention than in those where people have less trust in the corporations and the impersonal strength of the market, such as is the case in Germany for example.